The legal requirements for worker's compensation insurance can be confusing. Most businesses must take out these policies by law whenever they hire someone but there are differences between states, sectors, and companies.
This post looks at state-specific requirements, penalties for non-compliance, and when you don’t need a policy. Here’s what you need to know:
State-specific requirements
States requiring coverage for all employees include California, New Jersey, Hawaii, Pennsylvania, and New York. These don’t consider the number of employees you have, so insurance applies immediately.
Other states require businesses to carry worker’s compensation insurance when they reach an employee threshold number. For example, Florida, Georgia, Mississippi, Rhode Island, and South Carolina demand that employers get worker’s comp when they hire four or more employees. For Alabama, Arkansas, Louisiana, Tennessee, and Virginia, it’s three or more, and for North Carolina and Wisconsin, it’s two or more.
Some states have industry-specific requirements for worker’s compensation insurance that depend on the sector in which you operate. For instance, Michigan and Tennessee require construction worker’s compensation insurance regardless of the number of employees.
Penalties for non-compliance
The penalties for non-compliance with worker’s compensation insurance regulations also vary considerably by state. Most have fines in place, and some threaten jail time.
For instance, in California, it is a criminal offense to fail to provide worker’s compensation insurance. The state punishes people with up to a year in jail and fines between $10,000 and $100,000.
New York also takes a tough stance. The state considers breaking the rules a misdemeanor or felony, depending on the violation. Fines go from $1,000 to $50,000 plus an additional $2,000 for each day without coverage.
Pennsylvania has some of the strictest rules in the union and considers non-compliance with worker’s comp to be a felony of the third degree. The state imposes fines of up to $15,000 and up to seven years in jail.
Florida takes a slightly different tack. It institutes a Stop-Work Order on companies found to be non-compliant and requires businesses to cease operations until they pay a fine and put proper insurance in place. Fines are usually twice the amount the employer would have spent on premiums over the preceding two years.
Lastly, in Illinois, employers who willfully fail to provide worker’s compensation insurance according to the rules face fines of $500 daily for non-compliance, with minimum penalties of $10,000. Furthermore, officers at companies failing to arrange insurance for their employees can be held personally liable.
Exemptions
Despite the tough penalties for worker’s comp non-compliance, many states have exceptions. These include:
- Sole proprietors and partners who don’t hire anyone and who aren’t official employees of the firm
- Workers who do not meet the definitional requirements of “employees” in some states
- Domestic workers and housekeepers without contracts or working undefined hours
- Independent contractors who aren’t employees (in some states)
- Businesses with less than the minimum employee threshold (as discussed)
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