Workers’ Compensation insurance can be a large cost for employers. This is especially true in the construction industry. Construction workers face all manner of dangerous hazards. Injuries on construction sites can be frequent and severe. As a result, Workers’ Compensation costs contractors a lot of money.

Trying to skip out on paying Workers’ Comp benefits can cost even more. A California employer found that out the hard way.

One of the contractor’s employees suffered a puncture wound to a foot while on a job site. He reported the injury to his employer. The employer refused to submit a claim, and he did not pay any Workers’ Comp benefits on his own. Consequently, the employee’s wound went untreated and it became infected. When he finally did see a doctor, the infection was too serious for antibiotics to treat. Surgeons had to amputate his leg below the knee. He filed a claim with the insurance company on his own. The insurer awarded him benefits as a permanently disabled worker.

An investigation of the contractor revealed that this was not the first time he’d declined to report a worker’s injury. He also owed thousands of dollars in back Workers’ Comp insurance premiums. Worse, he misclassified some employees as independent contractors. This meant that he wasn’t withholding and paying payroll and Social Security taxes for them.

The result? The contractor was arrested and charged with multiple felony counts of Workers’ Compensation fraud. He faces up to five years behind bars.

This story has several morals for business owners:

  • Classify and report all payroll properly. If an employer misclassifies employees, the authorities will eventually find out. They deal with fraud often enough that they can easily recognize the signs. Some states have enacted laws specifically designed to root out worker classification fraud. New York enacted such a law in 2010, with stiff penalties for employers who misclassify. Maryland fines employers who deliberately misclassify up to $5,000 for a first offense and double that for subsequent violations.
  • If a worker gets hurt on the job, report it to the insurance company promptly. Delaying an injury report or not reporting at all are very bad ideas. The penalties employers face for violating state Workers’ Comp laws can be significant. In Colorado, violating employers can be fined up to $1,000 per day for each violation. A long-delayed report can easily result in a six-figure penalty.
  • If your business cannot afford to self-insure, buy a Workers’ Comp policy. State authorities are not gentle with employers who violate this requirement. Florida law allows the Workers’ Comp Division to issue stop-work orders within 72 hours of determining that an employer is in violation, with $1,000 daily fines for violating the order. Minnesota assesses fines of up to $1,000 per week per employee for noncompliance. Businesses that break these laws may soon find themselves out of business.

The Workers’ Comp system exists to give injured workers reliable and prompt benefits while shielding employers from lawsuits. Employers who try to skirt the system will find themselves in the same position that this contractor did. That’s a position they do not want to be in.

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