DISCLAIMER: This post gives a general overview of the defenses to workers’ compensation penalties for failure to secure mandatory insurance. It is not legal advice. If you require information or advice applied to your unique situation, please make an appointment with an employment or WC attorney.
The New York State Workers Compensation Board (WCB) is the administrative state agency charged with ensuring injured workers receive the treatment and wage replacement benefits they need to return to work. If they can’t return, the WCB awards them benefits to help them live as close to how they would have lived before the accident.
The Board is an administrative agency that functions a lot like a court when it comes to workplace injuries. It must also ensure that the Uninsured Employers’ Fund (UEF) is properly funded and that unscrupulous employers don’t shift their liabilities to the UEF.
The WCB meets its fiduciary duties to taxpayers by auditing payroll and income tax filings for inconsistencies. It can also identify potentially uninsured employers through unemployment insurance claims and forms filed by WC insurance carriers.
The goal is to identify uninsured employers before an uninsured accident occurs. The Board doesn’t want to put you out of business; it wants you in compliance.
Do Not Ignore the WCB Coverage Inquiry
The WCB’s computers will automatically generate a penalty notice for the periods in question, if you do not respond to the inquiry letter. The Board is not persuaded by excuses such as:
- “I misplaced the notice.”
- “The notice went to the wrong address.”
- “It was received during our busy season.”
- “I forwarded it to someone else who didn’t follow up.”
If you fail to respond to the inquiry notice by the due date, you will be presumed uninsured. Penalties will be assessed at a rate of $2,000.00 for each 10-day period when insurance cannot be verified.
If the Board continues to receive no response from you, a judgment could be entered. Once that happens, it is almost impossible to get the penalties fully rescinded, even when you weren’t required to have WC insurance.
Do not ignore correspondence from a government agency.
Take Action on a Penalty Notice Immediately
The WCB may have issued the notice because you:
- Did not respond to the coverage inquiry
- Failed to renew your workers’ compensation insurance policy.
- Misclassified an employee as an independent contractor
You will typically have 30 days to prove that you either had insurance or were not required to provide it. Do not be surprised if it takes longer than you think to gather the evidence.
Ignoring the penalty notice or failing to respond in a timely manner can result in significant penalties, including fines, interest, and a stop-work order.
Begin Gathering Documents and Evidence
Before the Board will offer a settlement, you must produce your C-105 form or a policy declarations page showing the periods for which you had insurance coverage. If you do not have insurance, expect to produce several documents to support your claim that you don’t need it:
- NYS-45 payroll tax returns for all periods at issue
- W-2 forms for all years at issue
- Complete income tax returns for those years
- Lists of vendors paid in each of those years
- 1099-MISC forms
- Other evidence of the true independence of your contractors
We recommend you consult an attorney before you submit the above records or speak to the Board. The representatives there want you in compliance, but they might also misinterpret what you said and view it in the light least favorable to you. They are not your friends. You will probably also need an attorney to help you negotiate the settlement.
Do Not Wait to Take These Actions
- Call an attorney who has experience resolving WC penalties. You might prefer an attorney who has worked with small businesses in your industry. If you employ a full-time nanny, housekeeper, or elder companions, you might want a lawyer who has experience resolving penalties for domestic employers.
- Forward all notices and penalty statements to your attorney. Your Application for Review of Penalties will not stop the penalties and interest from accumulating. You will continue to receive notices and penalty statements.
- Pay penalties early, even if this requires a payment plan. You have other business concerns that demand your attention. Set up the payment plan, and implement a reliable system to make the payments until the balance is paid in full.
Set Up Systems to Ensure Continued Compliance
Even if the WCB rescinds the penalties assessed against you, there was clearly something wrong in your systems that you got the penalty notice. Work with your attorney, accountant, insurance broker, and management team to ensure you have effective processes when:
- Hiring and firing employees
- Subcontracting work
- Working with vendors
What evidence should you gather?
Download This Vendor Intake Sheet
Uninsured Employers in New York: Consequences and Legal Risks