$6,000 plus legal fees – The Cost of NOT having Workers' Compensation Insurance!
Recently Insightful Accountant hosted a webinar on payroll myths. One myth among some small businesses is that they can save money by not having workers' compensation insurance. Here’s a true story (albeit, the names have been changed to protect the innocent) about the cost of not complying.
A young lady, we will call her Susan, went to work for an animal rescue. They were fairly new to the business with plans to expand into doggie day care. On the first day of working Susan tried to stop a dog fight in the manner in which she had been instructed, but was bitten on the hand. She reported the incident, washed it out carefully and got some minor treatment. A few days later Susan had the hand checked and was told the bite was infected and needed to be flushed – surgery was immediately scheduled. Two days in the hospital, and an arm wrapped up like it was broken for four weeks followed. Of course Susan could not work.
Susan loved animals and didn’t want the company she had worked for to pay. However, her health insurance said it was a work-related injury and they wouldn’t cover the expense. Susan asked the employer for workers' compensation insurance information, multiple times, but didn’t get any response – not even a “we’re sorry you were hurt” or “are you okay”.
Susan filled out forms for the state workers' compensation board. That’s when the fun began. A letter arrived in the mail saying that the company she worked for didn’t have workers' compensation insurance. Uh Oh! Susan tried to get the company to just pay the medical bills but they wouldn’t talk to her. Time to call a lawyer.
To make a long story short, the animal rescue had to hire a lawyer, they had to pay Susan’s medical bills, the also had to pay Susan’s lawyer and still yet, they had to pay Susan some extra money because of all the "we're not responsible" games they played and the things they said. They even tried to claim that she had been volunteering at the animal rescue on a trial basis and wasn’t an employee at all, but the workers' compensation board and both lawyers told them they had 'no case'.
All Susan had really wanted was her medical bills paid. Instead, the company ended up paying her medical bills and a lot more. They also had to get workers' compensation insurance because they were now on the state agency’s “watch list”.
In the long run, they would have saved a lot of money if they had only followed the law and secured workers' compensation coverage in the first place.
It’s our job as trusted advisors to make sure our clients understand the laws and that they follow them. We should never let our clients be "penny wise and pound foolish."
Editor's Note: You can access the recorded version of the Webinar (Payroll: Myths & Mistakes, and How to Avoid Them) which Caren refers to at this website.