DISCLAIMER: This post is intended only as general information about New York Workers Compensation Law. It is not legal advice, and reading it does not make us your attorneys. If you need specific legal advice, please contact an attorney in your jurisdiction to discuss your unique circumstances.
What happens if an injured worker files a WC claim, but the employer doesn’t have workers’ compensation (WC) insurance?
When workers are injured in the course and scope of their employment, they typically seek compensation through the WC systems in the states where they were injured. These systems typically administer payment for causally-related medical care and lost wages while they recover, but in New York State, the payments are made from insurance reserve funds, not the State. So, when there’s no insurance, the NYS Workers Compensation Board (WCB) has to find other ways to ensure the injured worker, or claimant, does not have to pay.
Occasionally, legal counsel for the claimant can sue the employer through a personal injury claim under an exception to the Workers Compensation Exclusivity Rule, but it is more common for the Uninsured Employers’ Fund (“UEF”) to pay the WC benefits up front and seek reimbursement from the uninsured employer. This helps the injured worker avoid unnecessary delays in treatment.
Costs of Failure to Insure
It might not seem like it, but the goal of the WC system is to get claimants what they need so they can return to work. That’s why WC insurance is mandatory in NYS and employers can be subject to civil and criminal penalties for failing to secure WC insurance for their employees–or any workers that the WCB deems employees.
When an employer lacks WC insurance to pay for an injury claim, the costs can add up quickly:
- Lost Wages and Medical Benefits. Uninsured employers are still responsible for paying all benefits awarded to their employees in their uninsured claims. That often means the owners will have to pay from their personal savings, children’s college funds, or other financial assets. No corporate structure will adequately insulate those funds from attachment where employee injury claims are concerned.
- Legal Representation Costs. A standard provision in NYS WC insurance policies in the Duty to Defend clause that provides for defense counsel if a claim is filed. Uninsured employers must pay their legal fees out-of-pocket.
- Penalties. The WCB has the discretion to assess penalties at a rate of $2,000.00 for every 10-day period of non-compliance with the WC insurance mandate. This can be added to the cost of the worker’s injury claim.
Additional Concerns
After an uninsured WC claim, employers may encounter other challenges that cost them more money, time, and energy:
- State or Federal Department of Labor (DOL) Audits. If an employer has an uninsured claim, especially when an injured worker is misclassified as an independent contractor, the DOL may conduct an audit. These audits verify proper payment of overtime wages and payroll taxes, potentially resulting in additional penalties and legal consequences.
- Unemployment Insurance Claims. Employers treating workers as independent contractors fail to contribute to the State’s unemployment insurance (UI) program. If the DOL identifies more misclassified workers, it must collect additional funds.
- Disability and Paid Family Leave Compliance. Employers without WC insurance often neglect disability and Paid Family Leave coverage. They will be required to secure a policy, and penalties may be imposed to ensure workers receive the necessary benefits.
Conclusion
While avoiding insurance costs may seem tempting, noncompliance with insurance mandates can lead to severe financial repercussions. Many clients come to us for penalty resolution services after relying solely on their accountants to determine whether they needed WC insurance. That is a legal question outside the scope of accounting services. An accountant can provide tax advice, but legal advice requires a lawyer.