You’ve got a policeman at your office door at 4:30 Friday afternoon–when you’re supposed to be heading out to take your youngest daughter off to college.  The officer is very professional, but it doesn’t take away the panic you feel when he tells you that you must provide proof of workers compensation insurance coverage, or you’ll be heading downtown with him to get locked up, rather than moving your daughter into her dormitory this weekend.


You’re sure you have a policy in place, but he tells you that someone has reported you to your state’s workers compensation agency for lack of coverage, and unless you can produce proof of coverage, you’re going to jail.  You get on the phone with your payroll provider because you set up a “pay-as-you-go” workers compensation policy with them a few years back.  Thankfully they contact the agent who hurries an email over to you with your proof of coverage.

Whew!  You’re covered.  You get to spend the weekend hauling boxes up three flights of stairs rather than languishing behind bars.  But this true story should make one thing perfectly clear: mandatory workers compensation coverage is no laughing matter.

Coverage requirements are governed by state law and most states require you to have a workers compensation policy in place if you have any employees.  Several states require a policy if you have 3, 4 or 5 employees.  Most states exempt sole proprietors, and in Texas, coverage is voluntary for most employers.  In some states, businesses that employ only family members are also exempt from coverage. Check here to link to your state site to find out your state department contact information and specific coverage requirements.

Substantial civil and criminal penalties apply to businesses who fail to maintain coverage.  For example, as of this date, failure to carry coverage is a criminal offense punishable by a fine of up to $10,000 or imprisonment in New Jersey.  If you are a California employer, those fines can reach $100,000.  Many states, at their discretion, can shut down your business.

In addition to these penalties, employees can sue their employers who don’t have coverage.  The “exclusive remedy” provisions of workers compensation policies generally cover medical costs, missed work and related expenses for job-related injuries, while protecting businesses from civil lawsuits.  Without coverage, a small business may needlessly be a target for expensive lawsuits that would substantially exceed their workers comp premium.

Bottom line: find out your state workers compensation laws and comply with them.  Otherwise you may face a hefty fine, or imprisonment.  And it’s not worth missing a life event like moving your child in to their college dorm room just to avoid a manageable, and mandatory, expense.
For more information about workers compensation insurance and our pay-as-you-go options, click below.