January 29, 2018
Workers’ compensation is an important part of the employer-employee compact in all 50 states.
Naturally the company’s owner is in business to make a profit after all expenses are paid. One of those expenses is the cost of workers’ compensation insurance to protect employees and to treat those employees who have job-related injuries or illnesses.
In the absence of this coverage, injured employees might have to sue their employers for medical bills and lost wages. To prevent that, all 50 states, Guam, Washington, D.C. and Puerto Rico have adopted some form of workers’ compensation insurance. Under this compact, workers give up the right to sue their employers for workplace injuries. This benefits employers but also requires them to maintain sufficient workers’ compensation insurance to cover their employees.
When Employers Fall Short
Most employers diligently fulfill their obligations and their workers are well-cared for. But some cheat the system and violate the trust of their workforce. Those bad actors also expose themselves to substantial civil and criminal penalties.
Here are several actual examples of what can happen when companies attempt to dodge their workers’ compensation responsibilities:
- One Florida couple operated a small chain of supermarkets. According to prosecutors, they failed to pay workers’ compensation insurance at one store for at least 10 years. The owners now face charges that they perpetrated a fraud in the amount of $35 million or more.
- A leasing company in Florida billed their clients for workers’ compensation insurance premiums on a nonexistent policy. The company’s failure to obtain the insurance left 33,000 employees uncovered. Several employees were injured on the job and were unable to collect benefits and were financially devastated. The owner of the leasing company was sentenced to 14 years in prison.
- The owners of a California moving company sought to minimize their workers’ comp cost by substantially underreporting payroll. The owners also pressured injured employees to lie to officials and medical personnel about how certain on-the-job injuries occurred. By falsifying the records, they hoped to shift costs to private medical insurance companies and make the company’s safety record appear better than it was. Eventually, the owners stopped paying workers’ comp premiums at all, leaving their workforce completely at risk.
Eventually the owner was forced to plead guilty to a number of felonies, pay restitution of nearly $2.4 million and serve 16 months in prison. His wife was also convicted and forced to pay a fine plus $470,000 in restitution costs as well as serve three years probation.
More Attempts to Game the System
Other employers seek to avoid paying workers’ comp costs by deliberately misclassifying employees as independent contractors.This not only lands employers in trouble with workers’ compensation officials, but also with the IRS, which has lately been cracking down on employee classification violations.
In some cases, employers have tried to falsify certificates of insurance so they can bid on contracts that required proof of workers’ compensation insurance. For example, one excavation company in Ohio was found to have fabricated a number of such false certificates. This deceit may have landed him a few jobs. When caught, he also had to serve three months in prison, submit to three years of monitoring and pay significant restitution costs.
Costly but Critical
Nobody will argue that workers’ compensation insurance is a minor cost. Depending on the nature of the work your employees do and the safety record your company has, the cost can be great. But it’s also an essential part of doing business, and failure to abide by workers’ compensation laws in your state can have catastrophic consequences for the employers and the employees alike.