If you are an employer paying W2 wages to employees, our answer is yes. If you are an employer making 1099 payments to subcontractors, our answer is still yes. If you use subcontractors, our answer continues to be yes. In short, we believe that when work is being performed workers compensation insurance should be purchased. Here are three examples of why.
Each state has different requirements outlining when a business must carry workers comp insurance. In Kansas, employers with W2 wages above $20,000 must obtain coverage. In Missouri, employers with five or more employees must buy coverage. However, even if you don’t meet your state’s requirements for purchasing work comp coverage, you are still legally liable for the medical expenses, financial burden and disability settlement associated with your employee’s work-related injury.
It’s important to remember that workman’s comp is intended to act as an exclusive remedy for work-related injuries. Generally, the injured worker is guaranteed various benefits for their injury. In exchange, the employer is relieved of her legal liability associated with the injury. When a work-related injury occurs, and the employer has no workers comp insurance to guarantee payment of benefits, the employer is no longer protected by the exclusive remedy the coverage provides. The employer is then at the mercy of a court and jury.
Here’s a stark and unsettling real-life example. A Missouri tree-trimming operation had only four employees. The owner chose not to buy worker’s comp coverage because he didn’t meet the five-employee threshold for mandatory coverage. A young employee put up a metal ladder at a job site then proceeded to climb. The ladder was near a power line. There was an electrical arc from the line to the ladder. The employee was severely burned from the arcing before falling to the ground. Injuries from the fall left the employee a paraplegic.
The employee, facing a lifetime of physical and financial burden, had no choice but to bring legal action against his employer to recover any money available. The employer lost everything he owned in satisfying the judgment against him.
When the employee of a subcontractor is injured, that employee would typically claim benefits against his employer's work comp policy. If there was no policy in place, most states allow the injured worker to seek relief from the entity which hired the subcontractor. That could be the general contractor or project owner. If those entities had workers compensation insurance, their policy would respond to the injuries of the subcontractor’s employee. Without a workmans compensation policy, they may become legally liable for related expenses.
We are familiar with a Kansas contractor hired to perform work in Nebraska. That contractor subcontracted much of the job to a Colorado contractor. An employee of the Colorado contractor was injured at the Nebraska job site. A work comp claim was submitted but denied because the Colorado worker comp coverage was not valid in Nebraska. The injured worker successfully brought legal action against the Kansas contractor for the benefits denied by his immediate employer’s Colorado worker’s comp policy.
Self-employed individuals mistakenly believe their health insurance will provide similar benefits to a work comp policy. However, health insurance policies often have exclusions for work-related injuries when workers compensation insurance is available, but the individual chose not to buy it. Plus, health insurance coverage does not provide coverage for lost wages and disability.