Does your business need workers compensation insurance?

This is a fairly simple question to answer.

Just about every business with employees is required by law to have workers comp insurance in New York.

There are exceptions to this rule:

1. If the business is owned by one individual who is the only employee of the company, has no leased or borrowed employees, and no subcontractor and no unpaid volunteers (including family members);
2. The business is a partnership (under the law of NY) and there are no employees, and others as indicated above;
3. The business is a one or two-person corporation with the owners holding all the stock and there are no employees or others as indicated above;

Then these firms can opt not to be covered by workers compensation. All other firms must comply with the law and either purchase workers compensation insurance or if they qualify, be self-insured for workers compensation.  Self-Insurance is a whole other topic and is reserved for only very large firms.

The penalty for non-compliance can be rather stiff. In New York, the Workers Compensation Board governs matters related to workers comp insurance and compliance with the workers’ compensation laws. An employer who fails to maintain workers compensation insurance is liable for a penalty of $2,000 per 10-day period of not having insurance.

As you can imagine, this can add up.

We have had some clients who were previously exempt (they had no employees) but then hired workers and started paying them unbeknownst to us. They became aware of their non-compliance after receiving a notice and penalty from the Workers Compensation Board for tens of thousands of dollars! While these penalties are often negotiable it doesn’t make sense to risk it.  Just get the insurance!

In addition to the penalties associated with non-compliance, there is also the risk that a worker is injured when you have no coverage. Under the law in New York, the employer is responsible for the actual medical costs and lost wages (subject to workers comp limits) the injured worker suffers as a result of a workplace injury. Knowing the cost of medical care, it’s not difficult to see how this can run into hundreds of thousands of dollars. On top of these out of pocket costs, the Comp Board can also assess other penalties and fines.

So, again, please; JUST GET THE INSURANCE!

What about “independent contractors” or “gig workers” or “part-timers”.  This common question I am asked by our startup, tech firms, and other clients all the time.  There is a general belief that if the worker isn’t full time or if they come and go as they please, or if the worker works for several firms at the same time then they are not subject to workers compensation (and possibly not payroll tax either).

I won’t comment on the taxation portion of the issue (please speak to your CPA), but from the workers compensation perspective it doesn’t really matter if the worker is paid a 1099 or per diem or in some other fashion; unless they are a “leased worker” and in this case, the actual employer is the employee leasing firm who can demonstrate they have workers compensation. In most cases, if you as the employer provide the worker a location, the tools to do their job (like a computer or workstation), tell them what they should do and when they should do it, set their schedule or any number of other things identified by the IRS in their “20 point factor test” then you likely required to have those workers on your workers compensation policy.

Look, I get it. In startup mode, money is thin, rules are loose, and you’re moving fast.  All that matters is getting your idea, product, strategy, or service, to a point to attract investor dollars, but the potential downside risk if an employee is injured without coverage in place can be enormous, and the potential penalties can get expensive too.

It’s better to be safe than sorry in the long run.

The bottom line is this: Workers Compensation is a requirement by law when doing business in New York when you have employees; with very few exceptions.

Have other questions?  Thoughts? Concerns?  Want to speak to an insurance professional to help you sort through what can seem like a confusing maze of rules and regulations?  Or, are you ready to make a buying decision?  Whatever is on your mind, we’d like to hear from you.  You can post a comment below or you can complete the contact form and we’ll get back to you.  Don’t want to fill in a form?  Give me, Gordon Coyle, a call at 845-474-2924 and let’s chat!