What Happens If You Don’t Have Workers’ Compensation Insurance?

As a business owner, there are plenty of questions that keep you up at night.

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How can you get more customers? Are you going to be able to complete that order in time? How do payroll deductions work? What happens if you don’t have workers’ compensation insurance?

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Worrying about these things (and more) is the name of the game when you own a business. But, let’s look at that last question in particular. What can you realistically expect to happen if you don’t have workers’ compensation insurance (often abbreviated as workers’ comp insurance)?

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Well, that depends. Let’s dig into the details.

But first...what is workers’ compensation insurance?

Workers’ compensation insurance is an insurance policy that specifically covers a work-related injury or injuries.

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Let’s say that an accident happens on the job, and now you have an injured employee. If you have workers’ compensation coverage (which you typically purchase through an insurance company), your employee can file a workers’ compensation claim.

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If the claim is approved, your workers’ compensation policy will compensate injured workers for their medical expenses and necessary rehabilitation, as well as the wages they lose out on while they recover.

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It’s important to note that most health insurance policies exclude work-related injuries. You need to carry workers’ comp insurance if you want to make sure you and your employees have coverage if you’re injured on the job.  

So...what happens if you don’t have workers’ compensation insurance? 

We know what you’re thinking: Workers’ comp coverage is another thing you need to investigate and pay for. 

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The cost of workers’ compensation insurance will depend on the size of your business, but the majority of businesses pay somewhere between $400 and $800 per year for their coverage. 

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If you’re wondering whether or not you can get away without this additional expense and forego a workers’ comp policy altogether, that depends on which one of the below categories you fall into. 

If you have employees…

There isn’t a hard and fast rule for workers’ compensation insurance coverage, because it’s regulated by the state you reside in. The National Federation of Independent Business has a helpful resource that breaks down the workers’ compensation laws by state, so you can find the rules that apply to you.

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However, if you have employees (whether they’re full- or part-time workers), your state is likely going to require that you carry workers’ comp insurance. Many states base this regulation on the number of employees you have—some states require workers’ compensation coverage if you have only one employee, while others set the minimum at three workers.

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Texas is the only state where workers’ compensation insurance is optional for private employers. But, even that has some exceptions. 

Here’s what happens if you don’t have workers’ compensation insurance...

What happens if you don’t have workers’ compensation insurance and you have employees? You run the risk of facing fines, potential lawsuits, and even jail time.

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The penalties for not carrying a workers’ comp policy will again vary based on your state. 

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For example, in New York, the penalty is $2,000 per 10-day period of noncompliance. In New Jersey, penalties for the first 10 days can be assessed at $5,000, and up to $5,000 for each 10-day period of failure to insure after that. You can check the potential penalties for your own state here. 

In many states, it’s considered a criminal offense to not have workers’ compensation insurance, meaning employers could have to spend time in jail.

Additionally, injured workers can sue their employers if the company was required to have a workers’ comp policy but didn’t. 

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Needless to say, those fines and penalties really add up—and they prove it’s more than worth investing in workers’ comp coverage if you have employees. As with anything, you’re better off safe than sorry. 

If you don’t have any employees…

Perhaps you’re self-employed and don’t have any employees. You’re a one-person business and proud of it.

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In this case, you’re not required to have workers’ compensation insurance, although it can still be a smart investment to protect yourself against a major financial burden if you get injured while working.

Here’s what happens if you don’t have workers’ compensation insurance…

The good news is that you’re not going to face any penalties or jail time for not carrying a workers’ compensation policy when you’re self-employed.  

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The bad news? As previously mentioned, many health insurance companies exclude work-related injuries from their health coverage. So, if you do get injured at work, you’ll not only be on the hook for your medical expenses—you’ll also lose out on wages while you recover.

If you work with independent contractors…

Let’s say you don’t have any employees on your payroll, but you do work with a lot of independent contractors. Again, workers’ compensation rules about independent contractors vary by state, so you’ll want to check what’s mandated where you live.

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In some states, independent contractors are actually viewed as employees, which means you’re required to carry workers’ compensation insurance to cover them. 

Here’s what happens if you don’t have workers’ compensation insurance…

Much of this is not only going to depend on your state’s laws and views of independent contractors, but also on if you’ve correctly classified the worker. Misclassifying employees as independent contractors comes with its own set of fines and headaches.

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If the person is actually an independent contractor and your state doesn’t require you to provide them with workers’ compensation coverage, then you aren’t legally obligated to do so. However, that doesn’t mean that an injured contractor won’t bring a lawsuit against you to try to make up those wages and cover medical expenses. According to attorney Janette Levey Frisch, they’ll just need to prove that:

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• There’s a causal connection between your actions/omissions and their injury
• Your actions/omissions amounted to negligence

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If you misclassified an employee as an independent contractor to get away with not paying for workers’ comp coverage, then you’re going to be dealing with your state’s penalties for not providing the necessary policy—as well as fines for misclassifying your employee.

Avoid worst-case scenarios with workers’ compensation insurance

If you have employees, then the answer is easy: Your business needs to carry a workers’ compensation insurance policy. If you’re self-employed or work exclusively with independent contractors, things get a little murkier.

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But, regardless of where on the spectrum of business ownership you fall, workers’ compensation insurance can be a smart investment to protect yourself and your business. The last thing you want in your business is more risk, and a workers’ comp policy is a great way to put a safety net in place. 

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Want to take the hassle out of finding workers’ compensation for your business? Start your free trial of Hourly.