Workers’ Compensation Insurance: Saving on Premiums Now Does Not Add Up to Money in Your Pocket Later

By Michael Zoller, Esq.

In New Jersey, every employer, who is not covered by Federal programs, whether it is a corporation, partnership, LLC or sole proprietorship is required to have workers’ compensation insurance or be approved for self-insurance, if anyone who is not an owner of the business performs work in return for a financial consideration (and under the statutes, a financial consideration is more than just money).  N.J.S.A. § 34:15-1 et seq.  Further, the definition of an “employee” is much broader under the workers’ compensation statutes than it is under other statutes like the Internal Revenue Code or Unemployment Compensation.[1]  A failure to carry workers’ compensation insurance can result in penalties that include fines and even a conviction for a disorderly persons offense or a crime of the fourth degree.  N.J.S.A. § 34:15-79.

Now, as the owner of a small business you might think that it is worth the risk of a statutory fine to skip paying the insurance premiums.  Perhaps you think you are small enough, maybe you have just one employee, that no one will ever notice that you do not have workers’ compensation insurance and thus, you will never have to face a penalty.  This type of thinking is extremely dangerous.  The biggest risk a small business faces from not carrying workers’ compensation is not a statutory penalty, but rather the potential liability that comes along with just one work related injury suffered by an employee.  One injury has the ability to single handedly sink a small business.

A workers’ compensation policy provides cash benefits to an employee for permanent or partial disability and for time lost from work.  Additionally, the policy provides for unlimited hospital and medical benefits.  The employer also benefits from the policy in that it will provide Employer Liability Insurance that protects the employer from legal liability for injuries not covered by the policy.  Without a workers’ compensation policy, an employer opens him or herself up to potentially having to foot the bill for an injured employee’s medical care as well as legal liability if the employee were to pursue a claim.

Further, an uninsured employer’s liability does not end with the injured employee.  In the event that the employer cannot pay the workers’ compensation benefits, the employee can recover most of the benefits from the Uninsured Employers Fund.  In this situation, the Fund itself can then make a claim against the employer for the benefits it has to payout.  N.J. S.A. § 34:15-120.5.  This is done in the form of a lien placed against the uninsured employer in Superior Court.  Additionally, the employee can place a lien against the employer for any benefits not covered by the fund.

When you add it all up, trying to save on insurance premiums now is not worth the risk you face later as an employer who does not carry the required workers’ compensation insurance.  Besides the fact that the law requires every employer to carry workers’ compensation insurance, the financial risk of potentially being liable for a work-related injury is just too great to not have a policy in place.  Accordingly, every New Jersey employer, no matter the size of their business, needs to make sure they retain and keep up to date at all times a workers’ compensation insurance policy.

[1] The statute applies either the “control test” or the “relative nature of the work test” and under either, if you have a person working for you, it is likely that person is an “employee” for the purposes of workers’ compensation.

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