Worker’s compensation (often referred to as worker’s comp) is a state-mandated insurance which is paid through your business insurance but is computed based on your payroll amounts. The more employees or higher total salaries you pay the more you will pay for worker’s compensation. The idea is that the more you pay, the more work/time is being spent on your business and the higher the risk of one of your employees getting injured. The cost of worker’s comp is directly correlated to your payroll expenses.
What it covers
Simply stated it covers workplace injuries. Those injuries may be simple to identify (such as a broken leg or a back injury) or may be psychological and a result of years of stress from doing the work for an employer.
Not having worker’s compensation
Many employers, especially small businesses, oven times pay employees cash, do not pay EDD and other State and Federal taxes and at the same time to no purchase worker’s comp insurance. This typically saves the employer about fifteen percent on the overall cost of labor. So if the employer has a total payroll expense of $10,000 per month, she saves having to spend an additional $1,500. If we look at worker’s comp coverage alone that saving is merely $100 or $150 a month.
Why it is suicidal not to have worker’s comp
When an employer does not have worker’s compensation then she is responsible for payment of all injuries suffered by its employees during work. While this might seem unlikely at first sight the unfortunate reality is that such claims become more likely due to the very fact that your employees know that you are not insured. A lot of entry-level employees are barely making ends meet. When they are given the power to take a big chunk of their employer’s wealth they become prone to filing such claims. At the same time, when employees are not paid through payroll, when they are terminated they are unable to collect unemployment benefits. This leaves them hopeless. When they are hopeless they are more prone to file worker’s comp claims hoping to get some money at least for their injury if not for being unemployed. This turns into a vicious cycle where employees become more litigious and personal relationships stop mattering to them. Often times unscrupulous attorneys will advise them that since they were injured since they were not paid via payroll since there
This leaves them hopeless. When they are hopeless they are more prone to file worker’s comp claims hoping to get some money at least for their injury if not for being unemployed. This turns into a vicious cycle where employees become more litigious and personal relationships stop mattering to them. Often times unscrupulous attorneys will advise them that since they were injured since they were not paid via payroll since there were tax fraud and worker’s comp violations they may be entitled to thousands of dollars and the employer may face tens or hundreds of thousands of dollars in government fines. All of this makes for a huge appetite to sue the employer.
Consequences of being sued without having worker’s comp coverage
When the employer does not have worker’s compensation coverage, she will end up having to pay for all of the damages out of pocket. Above and beyond such damages, the employer will end up paying for the employee’s attorney’s fees and costs. As you know most attorneys charge at rates ranging from $400 to $600 per hour. An average case might easily take up 200 or 400 hours of attorney time. This translates into a $50,000 or $100,000 or $200,000 bill which can be devastating. Additionally, the employer will need to hire her own attorney to decent itself and to work on minimizing the liability exposure from the worker’s comp claim. The entire ordeal can often ruin the employer financially. All for the mere fact that the employer wanted to save $200 a month.
We at The Margarian Law Firm advise all of our business clients to always carry adequate insurance coverages. As part of our services, we advise clients what type of insurances and other steps they need to take to protect themselves. On the flip side, we represent employees who were injured at their workplace and file such claims against their employers. Lastly, we also represent employees who for various reasons have failed to obtain worker’s compensation insurance or to maintain proper bookkeeping and payroll and now face legal consequences due to unhappy former employees. For a property and meaningful consultation about any of these and related matters call our office today and ask to speak with an attorney.