Consequences of Operating without Workers’ Compensation Coverage

A Massachusetts man was recently awarded a settlement of $750,000 after sustaining a job-related injury while working for a landscaping company operating without workers’ compensation insurance. While the business owner maintained the plaintiff was not an employee of the company at the time of the accident, the jury decided the owner was liable for the consequences of operating without workers’ compensation coverage on his personnel.

In most states, employers are required by law to do so. While certain states allow employers with sufficient assets to self-insure and provide exemptions for smaller companies (those with four or fewer employees), in most cases, if you hire workers, you’re expected to be responsible for injuries they sustain while performing their duties.

Liability Risks

As the above case shows, sanctions for failure to comply can be rather significant. In one example, Uber, famous for classifying its drivers as independent contractors to avoid paying for benefits was recently sued by a driver who alleged he was attacked on the job. Uber denied responsibility, asserting the individual was working on his own behalf and therefore responsible for his own safety.

However, the court held the independent contractor classification did not shield the company from liability for the driver’s injuries. Uber was ordered to pay the individual’s reimbursable business expenses after the judge decided the company’s drivers are more accurately classified as employees, due to the technology platform’s involvement in the relationship. Though Uber does not control the specific hours drivers work, it does assign them customers.

Pay a Little Now or Pay More Later

A study conducted by the Oregon Department of Consumer and Business Services found California’s workers’ compensation insurance rates are the nation’s highest, while North Dakota’s are the least expensive. Employers in the Peace Garden State pay an average of 88 cents per $100 of payroll, while Golden State employers pay an average of $3.48. This means the median premium for a California employee making $50,000 comes in at approximately $1,740 a year. Meanwhile, a single injury can cost $38,000 or more in either state. Ultimately, it’s cheaper to pay the insurance.

Safe Work Practices are Important Too

According to statistics provided by the U.S. Department of Labor, occupational injuries cost businesses some $170 billion in profits each year. Meanwhile, workplaces with safety and health management systems in place can reduce injury and illness costs by 20 to 40 percent. In addition to being the right thing to do, this can be the difference between operating in the black and running in the red. So, while providing workers compensation insurance is a key aspect of a company’s responsibilities to its workers, teaching them to work safely is important too.

Devalued/Demoralized Employees

Most employees consider benefits a huge factor when it comes to determining their loyalty to a company. People working without assurances tend to be less committed to a company’s growth than those who know they’ll be covered should an injury occur. When you show your employees you care about them, they are more likely to care about their jobs and, by extension, your business.

Significant Penalties

Getting back to California for a moment, in addition to civil suit liabilities, employers there can actually serve jail time for failure to provide coverage. New York State imposes a penalty of $2000 for every 10 days workers are uninsured. With possibilities such as these hanging over your head, it’s far better to operate within the law than face the consequences of operating without workers’ compensation Insurance.


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