Workers’ compensation is the flagship insurance coverage for protecting your employees from workplace injuries and your business from subsequent litigation and medical costs.
Practically all states require you to carry workers’ compensation insurance from the day you hire your first employee. It covers everything from your employees’ medical costs, legal costs, and even death benefits in the event of a fatal workplace injury.
With the average workers’ comp claim reaching $40,000, this is a type of coverage you cannot afford to miss out on. So here are the consequences of deciding to go without workers’ comp.
How Workers’ Compensation Works in the U.S.A
Every state has its own rules regarding when and whether you need to carry compensation for workers. However, all states will require some form of insurance, with the sole exception being Texas.
Texas is the one state where workers’ comp is not required, but most businesses will voluntarily carry a valid policy.
Coverage and rules will vary heavily between states. For example, Georgia only requires you to carry insurance after reaching a set number of employees. Others base their decision on the type of business and the workers involved. Still, some states demand that you carry workers’ comp after you make your first hire, whether part-time or full-time.
You must understand the laws in your state. Then, consult an employment attorney to find out what your obligations are.
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The Cost of Workers’ Comp
Many entrepreneurs believe they can do without the extra expense of a workers’ compensation policy. However, as of this writing, average workers’ comp rates are relatively low compared to the overall costs of paying for medical and legal fees directly from your business bank account.
Generally, most small businesses can expect to pay less than $1,000 per year to avail themselves of this core piece of business coverage.
States are increasingly cracking down on businesses not carrying workers’ compensation when required. Administrative penalties are significant, meaning there is no sense in taking the risk by not carrying workers’ comp.
Penalties for Not Carrying Workers’ Comp
As with individual workers’ comp laws, penalties also differ between states. Some states even threaten jail time for employers that fail to adhere to rules on carrying workers’ comp.
Some of the states where business owners have been jailed for forging this coverage include:
- California
- Illinois
- Pennsylvania
- Michigan
Most fines range from $1,000 to $10,000 or more, depending on the state. New Jersey is notorious for its strictness, with five-figure fines and 18-month jail terms for businesses that violate the law.
Compare the average premiums of $400 to $800 per year for workers’ comp, and the steep penalties make it a poor investment to attempt to fly under the radar by not purchasing coverage.
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Business Consequences of No Workers’ Comp
Penalties from state authorities are one thing, but there are other consequences of not having workers’ compensation insurance that pertains directly to your business.
Workers who are injured on the job are highly likely to file claims against their employers. In the worst-case scenario, it may even balloon into a class-action lawsuit.
Fighting lawsuits can gobble up thousands of dollars in legal fees and final settlements. But unfortunately, most small businesses lack the resources to directly cover legal costs, settlement fees, and benefit payments to injured employees.
Smaller companies may be devastated by the costs of a single claim. However, none of this considers the long-term consequences of a loss of reputation. In today’s world, reputation is everything, and not taking care of your employees can stain people’s perceptions of you forever.
You cannot purchase workers’ compensation insurance retroactively, so does it make sense to take the risk?
Avoiding Risks by Taking Out Workers’ Compensation Insurance
The primary gripe business owners have about workers’ compensation is the costs of scaling. Multiple economic studies have revealed that major companies spend nearly 2% of their operating expenses on insurance premiums alone.
To confront the scaling costs of doing business and rising premiums, it may be tempting to drop this coverage entirely, especially if you are not legally required to carry it in the first place.
Understand that workers’ compensation insurance is not exclusively a benefit for your employees. Instead, it provides business benefits to you as the owner.
Even a relatively minor accident of someone falling on a wet floor and spraining their ankle could cost thousands. Each incident will require you to pay medical costs, replace lost salaries, and cover legal fees if the victim decides to take legal action.
Any noteworthy business knows that the cost of the monthly premiums is a small price to pay compared to the potential bill associated with being caught without coverage.
Attract the Brightest and the Best
The cost of U.S. healthcare has been a hot-button issue for many years. However, more than half the country already receives health coverage through their employer. To attract talented staff in a highly competitive economy, you must show that you care about them.
Employees who know they have little recourse if injured on the job are unlikely to want to work for you.
Workplace benefits are a vital aspect of attracting the talent you want. However, compared to the difference a single talented employee can make to an organization, monthly premiums are a relatively small price to pay.
Conclusion:
Workers’ compensation laws are complicated. The costs of non-compliance with state laws can be enormous and may even see you serving a compulsory jail sentence. Hiring an employment attorney who can educate you on your obligations is a course of action that can pay dividends.
Even if not required to hold workers’ comp, paying for the policy can be highly beneficial because you also get to enjoy those same protections.
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