Employers in Virginia who fail to provide mandatory workers’ compensation insurance can face much higher penalties now than in the past.
Starting July 1, the state increased the civil fine that can be imposed on uninsured employers to a penalty of $250 per day for each day of noncompliance, up to a total of $50,000, plus collection costs.
The previous penalty was a minimum of $500 and a maximum of $5,000.
It’s a big increase in the penalties, which had not been changed in a long time, so the state’s Workers’ Compensation Commission is warning businesses and other employers to make sure they are in compliance with the requirements.
“We recognize this is a significant change and a significant economic impact to employers,” said Laura K. Collins, insurance manager for the Virginia Workers’ Compensation Commission. “We are doing our best to get the word out.”
The legislation increasing the penalties sailed through the Virginia General Assembly during its legislative session earlier this year.
“The penalty hadn’t been adjusted in over two decades,” Collins said. “It was no longer in line with inflation and the cost of insurance.”
As a result, some employers found it cheaper to pay the old lower penalty than to get workers’ comp insurance.
Workers’ compensation insurance covers on-the-job injuries and is a standard requirement in every state. The insurance is designed as a way to balance the interests of employers and employees in paying for workplace injuries.
“Employers might not realize it, but they do benefit from it,” Collins said.
For employers, workers’ compensation insurance is an added cost, but it provides a shield from civil lawsuits for work injuries.
For injured workers, the insurance does not offer some of the remuneration that could come from a lawsuit, but it still provides “prompt but limited benefits” that would not be guaranteed through a lawsuit.
Virginia had about 310,000 reported work injuries in 2013.
The average cost of a lost-time work-injury claim in Virginia was about $74,505, according to 2011 data collected by the National Council on Compensation Insurance, the latest available.
In Virginia, employers can obtain workers’ comp through commercial coverage, self-insurance, group self-insurance or through a registered professional employer organization, the Workers’ Compensation Commission said.
Collins said Virginia premiums are among the lowest in the nation. As of 2012, the cost was about $1.20 per $100 of payroll, below the national median of $1.88.
A bigger issue is that some employers might not be aware that they need to have workers’ comp insurance, Collins said.
The law surrounding who is required to get the coverage, and who qualifies as an employee, is complex.
“I think there is still broad confusion in terms of the statute that says if you regularly employ more than two part-time employees you have to have (insurance), and if you don’t, you can opt out,” said Robert N. Bradshaw Jr., president and chief executive of the Independent Insurance Agents of Virginia. “We have been working with the Workers’ Compensation Commission to educate our members.”
The law requires that an employer who regularly employs more than two part-time or full-time employees carry workers’ compensation coverage, the state commission said. An employee is defined broadly under the law.
One big area of confusion surrounds subcontractors and independent contractors.
The Workers’ Compensation Commission said subcontractors should be included in determining the total number of employees. Designating a worker as an independent contractor does not necessarily mean they are not considered an employee under workers’ comp requirements.
Family members who perform work for a business are considered employees needing coverage, as are minors, apprentices, undocumented workers and temporary, seasonal and part-time workers. So are people who perform work for churches, charities and nonprofits.
Bradshaw said any organization that is uncertain about whether it might need to have workers’ comp coverage should contact an insurance professional.
“Workers’ comp is a specialty area,” he said. “You need to see an insurance professional who understands commercial insurance and the requirements related to that.”
The new penalties are now in effect, but Collins said the state is not imposing the higher penalties on employers right now unless the start date of their being uninsured occurred on or after July 1.
The civil penalties that are collected go partly to support a state fund that covers claims against uninsured employers. In the five-year period from 2009 to 2013, the state has had 200 to 238 claims per year against uninsured employers.
The higher penalties are expected to produce about $650,000 in additional non-general fund revenue per year. Of that, about $500,000 is expected to result from the increase in civil penalties while $150,000 is expected to result from the recovery of collection costs.