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As a small business owner, you may think that you’re exempt from “worker’s comp” and disability insurance…but you are not if you have any type of employee. In nearly every U.S. state, businesses employing workers (full or part-time) are required to have workers compensation insurance (or be self-insured) to help pay for potential employee claims. In New York, state law requires employers to cover all employees with workers’ compensation and disability insurance. Failure to comply with state workers’ compensation insurance rules can result in serious penalties and other liabilities.

Even if you’re a freelancer or sole proprietor and work alone, you need to be in the know about workers’ compensation, which helps provide medical care and income to workers if they are injured or become sick as a result of their job. For example, most states (including New York) do not require self-employed individuals or freelancers to have workers’ compensation insurance, which can leave them vulnerable to injuries.

So how do workers’ compensation requirements apply to you and your business? Read on to find out:

Do I need to have workers’ compensation insurance?

If you operate a for-profit business in the state of New York that employs any persons other than yourself, worker’s compensation and disability insurance are required. This includes full-time, part-time and family member employees. To be in compliance with the law, businesses must:

  • Have a workers’ compensation insurance policy covering all workers; or
  • Be self-insured for workers’ compensation; or
  • Be exempt from workers’ compensation requirements.

Can I get an exemption if I’m self-employed?

New York does allow an exemption from workers’ compensation for some businesses with no employees of any kind, no unpaid volunteers and no subcontractors. The exemption is also available to business partnerships and corporations owned by one or two persons, again with the condition that there are no employees of any kind, or volunteers or family workers.

However, self-employed persons can carry workers’ compensation coverage if they choose, providing additional insurance in case of a workplace injury or disability. Some businesses may also require it if the self-employed person conducts business with them.
What if I manage a nonprofit?

In general, nonprofit organizations are not required to maintain workers’ compensation insurance for their non-compensated volunteers. Stipends, room and board and other considerations may be considered compensation, however.

Do non-New York businesses have to comply with New York workers’ comp laws?

Yes. If an employer is required to register with the NY Department of Labor, or has a location in New York, or had employees for 25 combined days or more, regardless of the state in which they are located or registered, they must be insured under New York state workers’ compensation laws for any employees who regularly work in New York state.

However, workers who travel through the state (not delivering or picking up materials in the state), are not considered to have worked in the state.

Exemptions: Employers with workers conducting only periodic work in the state (that does not fall under full workers’ compensation requirements) are required to maintain workers’ compensation in compliance with the laws of its home state.

How do I get workers’ comp insurance?

If you have employees (regular, leased, borrowed or family), or use subcontractors or volunteers, you must have workers’ compensation insurance or be self-insured. New York employers can obtain such insurance policies from more than 200 insurance companies. The State Insurance Fund also offers policies.

What is self-insurance?

There are three options for workers’ compensation self-insurance:

Employers with the financial means to do so may obtain “individual self-insurance” by posting a security deposit (bond, credit or cash) with the state workers’ compensation board.

Employers in some industries can obtain “group self-insurance,” where the group collectively covers potential claims against all of its members.

Cities, counties, school districts and other government entities in the state are considered covered under “local government self-insurance” and are not required to post a security deposit. They may also purchase a workers’ compensation insurance policy.

Can I deduct the cost of workers’ comp insurance from employee paychecks?

No. It is against the law for businesses to require employees to pay any of the costs associated with workers’ compensation premiums or injuries. Employers must pay the cost of insurance directly.

What does workers’ comp cover?

  • Medical services required to treat a job-related injury or illness
  • Provides temporary disability payments to the employee to replace wages lost due to inability to work
  • Permanent disability payments to the employee to compensate for permanent effects of the injury
  • A death benefit for the employee’s survivors in the event of a fatal injury
  • Employer legal protection against most lawsuits for on-the-job injuries/illnesses

What are the penalties for not having workers’ comp insurance?

A business that fails to maintain workers’ compensation insurance can be penalized $2,000 per 10-day period of noncompliance. This is in addition to any actual award stemming from a workplace injury or sickness (both compensation and medical costs), which can result in six-figure liabilities. The workers’ compensation board may also assess other penalties for noncompliance.

Falsifying business and employee records, or otherwise misrepresenting workers’ compensation insurance, may also result in a fine of $2,000 per 10-day period, or double the cost of compensation. The fine for a criminal conviction of such is $1,000-$50,000. Misrepresentation includes paying workers “under the table,” not reporting wages, misclassification of employees or concealing information.

What is a stop-work order?

If a business is found to be non-compliant with the workers’ compensation laws (or has an outstanding debt to the workers’ comp board), they may be barred from all business activities until they return to compliance. A stop-work order may also result in the cancellation of contracts or subcontracts with state and municipal entities.

To ensure compliance, businesses should maintain proof they are:

  • Covered by valid workers’ compensation insurance;
  • Self-insured for workers’ compensation; or
  • Legally exempt from having to obtain workers’ compensation coverage, and/or
  • Keeping proper, accurate business records.

Who is responsible for the penalties?

The business owner (sole proprietor or partners), or the president, secretary and treasurer of a corporation are personally financially liable for a business’ failure to secure workers’ compensation insurance.

What about disability insurance coverage?

New York requires businesses to provide disability insurance coverage for employees for non-work-related injuries or illnesses. This provides temporary income to covered employees to cover wages lost due to injury or illness. It does not include medical coverage. Employers are allowed to offset the cost of this coverage via employee contributions.

There are significant penalties for employers who fail to provide disability insurance: A penalty of 1/2 of one percent of the employer’s payroll during the period of noncompliance plus an additional sum of $500 for each period of noncompliance will be imposed.

In addition, the Disability Benefits Law states that, “not securing required disability benefits insurance is a misdemeanor, punishable by a fine of not less than $100 nor more than $500 or imprisonment for up to one year or both. A second violation of the Law within five years may result in a fine of not less than $250 nor more than $1,250. A third or subsequent violation of the Law within five years may result in a fine of up to $2,500.” Yes, this is something to take seriously!

MEDOWS CPA offers expert help to resolve worker’s compensation and disability penalties

As we’ve discussed here, non-compliance with worker’s comp and disability insurance laws can cause significant financial difficulties for businesses—even if they have only a few employees. Freelancers also need to consider whether they should have worker’s compensation insurance and disability insurance to protect their income in case of an accident or injury.

Operating a business without the required worker’s compensation insurance and disability coverage is risky and illegal, now is the time to remedy the situation, before you face fines. If your business has already been fined for non-compliance, or you have an outstanding worker’s compensation lien, it’s time to consider professional help so that you can be proactive about negotiating fines and contingency fees. MEDOWS CPA’s team of financial experts can help you resolve issues related to worker’s compensation penalties and worker’s compensation liens, contact us today.