Violating Workers’ Comp Laws can be Costly

Posted on Friday, March 29, 2019

The owner of a construction company is behind bars. Why? He cheated on his workers' compensation obligations.

Here's the story: One of the company's workers punctured his foot in the course of his duties on a construction site. He told his employer about the injury, but the employer refused to submit a workers' compensation claim. The worker couldn't afford to privately pay for medical care, so the wound went untreated. Eventually the foot became so infected that even modern antibiotics couldn't save it. Doctors had to amputate the laborer's leg to just below the knee and the insurer classified him as a "permanently disabled worker."

Upon examination, however, investigators from the California Department of Insurance learned that the employer had a history of failing to report workplace injuries.They also discovered that he owed thousands in back workers' compensation premiums. What's worse, the employer had been deliberately misclassifying his actual employees as independent contractors to not only underpay workers' compensation premiums, but also avoid having to withhold taxes.

The end result: Investigators arrested the owner of the business and charged him with multiple felonies. He faces up to five years in prison.

Takeaways for Employers

Employers must properly classify statutory employees. If you have a worker who functions as an employee as opposed to an independent contractor, don't try to classify him or her as a contractor. Investigators are experienced at identifying this kind of fraud and a number of states have passed their own prohibitions against misclassifying employees. Maryland, for example, fines employers up to $5,000 for a first offense, and double that for second and subsequent offenses. This kind of misclassification can also land you in trouble with the Internal Revenue Service, as well as cause you to violate the Fair Labor Standards Act.
Immediately submit a record of any workplace injury. Don't delay reporting and definitely don't fail to report entirely. In the case mentioned above, it was the business owner's failure to report the worker's injury that triggered a closer look and ultimately led to his arrest and prosecution. Laws vary by state but, as an example, Colorado courts can assess a fine of up to $1,000 per day per violation. Long delays can result in penalties of $100,000 or more.
Keep a state-approved workers' compensation policy in force at all times. Florida allows their Division of Workers' Compensation to issue a stop-work order within 72 hours of finding that an employer is breaking the rules. Fines for violating the order are as high as $1,000 per day. Minnesota issues fines of up to $1,000 per week per employee.

Workers' compensation insurance is there to protect workers and employers alike. Workers benefit because they don't have to go through lengthy and expensive lawsuits to obtain medical care and compensation for injuries. Employers benefit because, generally, they can't be sued for injuries covered under workers' compensation rules. But when employers fail to uphold their obligations, the mutual protection breaks down — and the law can come down hard on rule breakers.

Posted in Tax Topics For Individuals

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