Workers’ Compensation Insurance

Fall 2017 Article

Workers’ Compensation Insurance

Employers often do not know that they must secure workers’ compensation insurance if they plan to hire employees in the United States. Workers' compensation is a mandatory type of business insurance that provides employees, who become injured or ill on the course of their employment, with medical coverage and income replacement. It also protects employers from being sued by employees for the workplace conditions that caused such an injury or illness. In fact, by agreeing to receive workers' compensation, employees are agreeing to give up their right to sue their employer for negligence.

Businesses are required by law in almost all of the United States[1] to pay for the medical treatment and lost wages of employees who suffer job-related injuries or illnesses[2]. In order to avoid having to pay for damages out of their pocket, employers purchase workers' compensation insurance policies. Most states give businesses the choice of buying workers' compensation policies either directly from the state or from a private insurer. Each state determines its own system’s payment schedules, employee eligibility requirements, and rehabilitation procedures. Although provisions of each state’s laws differ greatly, the underlying principle is the same—that employers should assume the costs of injuries, illnesses, and deaths that occur on the job, without regard to fault, and partially replace wage income loss.

Often times, employers, small business owners especially, are concerned about the cost associated with the workers’ compensation coverage. Since the law mandates the coverage, employers are required to provide it to their employees. The rates are based on the employer’s total payroll, the classification of the employees, and the employer’s accident record. The wages paid each employee are assigned a rate based on the occupational classification in which that employee works. The rate for a clerical office employee is much lower than the rate for an employee whose job duties are risky, such as a driver or a construction worker.  Further, the safer the place of employment, the more chances to lower the insurance premiums because it is less likely that an injury will occur.

Penalties for failing to carry workers’ compensation coverage can be severe. In general, business owners who are neglectful in this manner can be held liable for the medical expenses incurred by the employees in their employ. Nonetheless, many businesses engage in what is known as "premium fraud," in which they either do not carry insurance as required or lower the costs of their policy premiums through fraudulent record keeping. Methods used to fraudulently reduce insurance premiums include underreporting of employee count or the wages they are paid, paying workers under the table in order to falsify the number of employees, misclassifying the kind of work engaged in by employees in order to reduce premiums through a misclassification of their occupation.

In addition to obtain workers’ compensation coverage, employers are also required to post a notice of compliance with workers’ compensation laws in a conspicuous place at the employer’s place of work accessible to all employees (i.e., the break room or kitchen). Most employers may request a copy of the notice of compliance to their insurance carriers. The notice may include information such as the workers’ compensation policy number, the name and address of the carrier. Violation of this requirement is punished with a fine, whose amount varies from state to state, but it is usually in the range of a couple hundred of dollars.

Employers are encouraged to check the workers’ compensation laws of the states where they will have employees as requirements may change.


Any workers’ compensation claims should be reported to the NYS Workers Compensation Board (the “Board”). All employers in New York State must provide workers’ compensation coverage to their employees, regardless of their full-time, part-time or temporary status[3]. Failure to obtain workers’ compensation coverage will expose employers to personal liability and monetary fines of $2,000 per 10-day period of noncompliance, plus the actual award (including both compensation and medical costs), plus any other penalties the Board assesses for noncompliance. In cases involving severely injured employees, the medical costs alone could be in the hundreds of thousands of dollars per injury. New York State also requires mandatory postings as mentioned above in the place of business to avoid further monetary penalties per violation[4].


All California employers must provide workers’ compensation benefits to their employees[5]. If a business employs one or more employees, then it must satisfy the requirement of the law. Failure to have workers’ compensation coverage is a criminal offense. Section 3700.5 of the California Labor Code makes it a misdemeanor punishable by either a fine of not less than $10,000 or imprisonment in the county jail for up to one year, or both. Additionally, the state issues penalties of up to $100,000 against illegally uninsured employers. Posting of a notice of compliance is also mandatory in the State of California[6].


Florida law requires all employers to purchase workers' compensation coverage (with a few exceptions)[7]. In Florida, the Division of Workers' Compensation within the Department of Financial Services is the primary regulator for ensuring employees receive the proper benefits under this coverage, which includes benefits for medical expenses, disability, or death. Florida also assesses civil, criminal, and monetary penalties against an employer violating the workers’ compensation laws[8].


The State of New Jersey also requires workers’ compensation[9], with a few exceptions.  

“It is illegal for an employer to not purchase workers’ compensation insurance.  Failure to purchase the required workers’ compensation insurance coverage is a disorderly persons offense and, if such failure shall be determined to be willful, a crime of the fourth degree.

Civil penalties for failure to provide such coverage are:

  • up to $1,000 for the first twenty days
  • and up to $1,000 for each ten days thereafter.

If a judgment is entered by a Judge of Compensation against an uninsured employer, in addition to the judgment amount:

  • an additional $1,000 penalty shall be imposed
  • as well as an assessment of 15% (not to exceed $5,000) of the  judgment amount.
  • Civil penalties may be imposed even if the case is not prosecuted criminally.  NJSA 34:15-120.1(c)

If successfully prosecuted as an indictable offense, the crime is punishable by up to:

  • 18 months in jail
  • a $10,000 fine
  • in addition to civil penalties.  (NJSA 34:15-79).”[10]

Additional penalties may apply in case of workers’ compensation fraud cases.


Unlike other states, Texas allows employers to choose whether or not to provide workers’ compensation coverage. Although public employers, and employers who enter into a building or construction contract with a governmental entity, must provide workers' compensation. At the time of hire, employers must inform employees whether workers’ compensation is provided. Of course, the benefit of having a workers' compensation insurance policy is that it will provide lost wages and medical benefits to employees if they are injured on the job. Except in cases of gross negligence resulting in a fatality, workers' compensation insurance coverage limits the employer’s liability if an employee brings suit against the business for damages.


This newsletter is of a general nature and is purely for information purposes. It is not intended to provide legal advice and does not create an attorney-client relationship. If you wish more information, please contact Daniela Morrison at

[1] Except Texas.

[2] Few exceptions apply for agricultural or domestic employees.

[3] NY WCL §§2 and 3.

[4] NY WCL §51.

[5]California Labor Code §3700.

[6] California Labor Code §3550; Title 8, California Code of Regulations, Division of Workers' Compensation §9881.

[7] Florida Statutes, Title XXX1, Chapter 440, Workers Compensation.

[8] Florida Statutes, Title XXX1, Chapter 440.107, Workers Compensation.

[9] New Jersey Statutes Title 34. Labor and Workmen's Compensation 34 §15-1.

[10] New Jersey Department of Labor and Workforce Development.