Penalties for Not Having Workers’ Compensation: An Overview

Unless your business is based in Texas, failure to carry workers’ compensation insurance can attract hefty penalties, ranging from daily fines to loss of your business permit. It can also result in huge financial losses in case your employee suffers a work-related injury or illness. Even in industries where injuries are rare, workers’ comp coverage is essential. Here’s a look at the penalties for not having workers’ compensation.

Risks of Not Carrying Workers’ Comp

Workers’ compensation insurance typically protects your business from financial and reputational losses related to injuries and illnesses at the workplace. Without it, you may end up paying huge medical expenses and lost wages out of pocket in the event of a workplace accident or injury. Failure to carry workers’ comp could also land you in trouble with your local authorities because all states except Texas mandate that employers carry this coverage. The penalties for noncompliance include loss of license, monetary fines, and jail terms. Moreover, without the protection of workers’ comp coverage, an injured employee can easily sue you for their injury.

Workers’ Comp Penalties by State

The regulations surrounding workers’ compensation insurance generally vary across state lines. For instance, states such as Wyoming, North Dakota, Ohio, and Washington, mandate that businesses purchase workers’ comp from their state funds. In Florida, only businesses with four or more employees need to carry workers’ comp coverage, while California requires businesses with even one employee to carry this coverage. The penalties for not carrying workers’ comp also vary by state. Here are a few examples:

  • In California, failure to carry workers’ compensation insurance amounts to a criminal offense punishable by up to one year of jail term or a $10,000 fine, or both.

  • In Pennsylvania, you may have to pay a fine worth $15,000 or serve up to seven years of jail term for not carrying workers’ compensation insurance.

  • In Illinois, a workers’ comp non-compliant employer pays at least $10,000 of fine followed by $500 for each day of noncompliance.

  • In New York, non-compliant employers can be charged with a felony or a misdemeanor. They can also incur a fine of anywhere from $1000 to $50,000, followed by $2000 for every ten days of noncompliance.

When Workers’ Comp Is Optional

A recent study shows that about 26% of small businesses in the U.S. lack workers’ compensation coverage. While some are illegally uninsured, there are exceptions for businesses to go without workers’ comp, depending on the state. You do not necessarily need to carry this coverage if:

  • You run a sole proprietorship

  • Your business is based in Texas or any other state that doesn’t oblige employers to carry workers’ comp

  • Your employee number hasn’t reached the threshold required for workers’ comp

  • Your staff comprises immediate family members

Remember, these exceptions may be illegal in some states. For instance, some states require you to carry workers’ compensation insurance even if you only have one employee. Also, all states require sole proprietorships in the construction industry to carry workers’ compensation insurance. Therefore, make sure to review your workers’ compensation state laws to make an informed insurance decision and avoid incurring workers’ compensation penalties.

Failure to carry workers’ compensation coverage could expose you to noncompliance penalties, including imprisonment, loss of license, and monetary fines. Would you like to learn more about workers’ compensation insurance and its benefits for your business? If so, get in touch with the team at Burton A. Harris Insurance Agency today. We’re eager to help address your business insurance needs.