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Pay it Now or Pay Them Later: The Truth about Workers Compensation Penalties

Most California contractors are acutely aware that the state takes the protection of its workers seriously. One needs only to review the licensing information and the requirements that are associated with it, namely Workers’ Compensation. Why is it the state is so adamant about enforcing workers’ compensation requirements? Simply put, California wants their workers protected in the event of a workplace-related injury or illness and if you do not comply there will be stiff workers comp penalties charged by the state.

State rules and regulations are written by attorneys and therefore typically confusing for the contractors who must understand and adhere to the rules. When calling a state office there should be an option that says “press 1 if you are not an attorney.” The general public should be able to understand the rules and regulations that govern their business practices, but sadly this is not typically the case.

Contractors certainly understand the licensing requirements in California and the rules that state workers’ compensation insurance and in many cases a surety bond, are required if you have an employee. What’s not clear to many contractors, are the various penalties if you fail to abide by the rules and how it can affect your bottom line. This article is meant to help the reader understand what happens if your business is found to be non-compliant.

LABOR CODE – LAB

DIVISION 4. WORKERS’ COMPENSATION AND INSURANCE [3200 – 6002]

( Heading of Division 4 amended by Stats. 1979, Ch. 373. )

When the average contractor attempts to read and understand the legalese contained in the language regarding the penalties for not having a workers’ compensation policy in place and an employee suffers a work-related injury, several things can happen.

Failing to carry workers’ compensation insurance when you are required to do so is a criminal offense. The California labor code considers it to be a misdemeanor which is punishable by a fine of $10,000 or more OR you can be imprisoned in your county’s jail for up to a year OR both.

On top of the fine and possible jail time, the state may (the key word is MAY) issue additional penalties of up to $100,000 against you if your business is illegally uninsured. This means you should have had workers’ comp and you didn’t comply.

Additionally, if one of your employees gets hurt on the job or becomes ill because of the job, you are responsible for paying all of the employee’s medical expenses related to the injury or illness.

But wait, there’s more! If your business is illegally uninsured and one of your employees gets injured on the job or comes down with a work-related illness, they can file a civil action (lawsuit) against you AND file a workers’ compensation claim against you. If after all this happens, you fail to pay the required benefits to the employee, you will also likely be contacted by the Uninsured Employer’s Benefit Trust Fund.

Uninsured Employer’s Benefit Trust Fund (UEBTF). These folks will generally pay the benefits that are due to your employee, and then chase you down until the end of time and force you to pay them back!

 

workers compensation penalties

 

The Bottom Line for Workers Compensation Penalties

 

If you feel that you can compete better in the marketplace by not carrying workers comp when you should, think about the long-term costs that will likely put you out of business if you don’t follow the rules. Here are some stiff workers comp penalties:

  • A fine of at least $10,000.
  • Jail time of up to a year.
  • Possible additional penalties of $100,000
  • Must pay medical expenses of an injured employee.
  • Face legal action from a civil action.
  • Be haunted by the UEBTF until the end of time if you don’t pay.

If you are considering not carrying workers comp because you think it’s too expensive, think again and then call the insurance professionals at Fairbanks Insurance Brokers and we’ll help you to not make this stupid mistake.

In fact, while we’re talking about mitigating your everyday risks while doing business, let’s see if we can save you money on other important insurance coverages.

 

Here is What We Recommend

 

General Liability: Contractors General Liability will be the foundation of protection for your business. The coverage will respond if you or your employees are found liable for bodily injury, property damage, or have a products/completed operations complaint. The coverage also covers defense costs for your business to respond to any lawsuits brought by a third party.

Workers’ Comp: Many states will require contractors to provide workers’ compensation coverage for their workers before they can begin a project. Accidents will happen at the job site that can result in an employee becoming injured and missing work. Your workers’ compensation coverage will provide financial assistance for medical expenses and lost wages.

Surety Bonds: It’s very likely that your state will require you to be licensed before you can begin operations. Most states and customers will require contractors to offer a license or surety bond before you are allowed to bid on a job or begin working.

Commercial Auto: Typically, most contractors will have light and heavy vehicles that require commercial auto insurance to make certain their vehicles can be repaired or replaced in the event of an accident, vandalism, or theft.

Tool Coverage: Also known as Inland Marine Insurance, this policy will provide for reimbursement for expenses to repair or replace tools and equipment. Your tools represent an important part of your livelihood, so we always encourage carpentry contractors to consider this valuable coverage.

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