Why Carry Worker’s Comp Insurance? Because There Are Stiff Penalties if You Don’t

Complying with Wisconsin’s worker’s compensation laws is critical for any business or individual with employees who provide services in the state. This article provides a brief overview of the types of employees, injuries, and expenses covered under Wisconsin’s worker’s comp statutes, along with the penalties for noncompliance.

What Does Worker’s Comp Insurance Cover?

While almost all large and midsize businesses obtain worker’s comp coverage as a matter of course, small businesses occasionally overlook this necessary expense. The Wisconsin Department of Workforce Development (DWD), the agency charged with administering and enforcing Wisconsin’s worker’s comp laws, states that worker’s comp is a no-fault insurance system that pays benefits to employees for accidental injuries or diseases related to their work. Employers can easily obtain coverage through a large network of private insurers licensed to write worker’s comp insurance policies in Wisconsin. The cost varies based on the job classifications of the employer. Almost all employers with employees who perform services in Wisconsin are required by law to have worker’s comp insurance, including:

• Employers that employ three or more workers on a full- or part-time basis;
• Employers that employ one or more workers on a full- or part-time basis and pay gross combined wages of $500 or more in any calendar quarter for work done in Wisconsin; and
• Farmers who employ six or more workers for 20 days during a calendar year.

A few, limited categories of employees are covered under federal laws rather than Wisconsin statutes, including (1) federal government employees (e.g., postal workers and members of the armed forces), (2) employees who work on interstate railroads, and (3) seamen on navigable waterways.

What are the Risks for Employers?

The scope of potential injuries covered by Wisconsin’s worker’s comp statutes is extremely broad and includes (1) physical harm (e.g., burns, cuts, sprains, and hearing loss), (2) mental harm (e.g., nervous disorders, hysteria, and traumatic neurosis), and (3) occupational diseases (e.g., silicosis, lead poisoning, and respiratory diseases). Wisconsin law requires that injuries and diseases arise out of employment, which is also quite broad. Injuries that arise out of employment include, among other things, injuries that are sustained:

• While performing the job;
• While going to and from work, provided they occur on company-owned property (injuries sustained during carpooling are not covered, but injuries that occur on company transportation likely would be covered);
• While attending to personal needs while on company-owned property (e.g., an injury sustained while using the restroom or eating lunch, but not an injury that occurs at a restaurant off the employer’s premises during lunch); and
• While employees are away from the employer’s premises but are still performing services for the employer and are under its direction and control (including when they fly or go to hotels and restaurants while on work-related trips, provided there is no deviation for personal purposes).

Wisconsin law expressly exempts injuries that are intentionally self-inflicted.

If an employee is covered by Wisconsin’s worker’s comp statutes and has a covered injury, then she or her family may be entitled to, among other things:

• Compensation for all medical, surgical, and hospital treatment related to the injury;
• Weekly benefits for temporary and permanent disability;
• Payment for training and rehabilitation; and
• Death benefits and burial expenses.

Wisconsin law allows for increasing or decreasing weekly benefits and death benefits by 15 percent (up to $15,000) for an employer’s violation of the “safe place” statute or an employee’s failure to use a safety device, respectively.

Knowing all that, the question that naturally follows is what happens to an employer that fails to comply with Wisconsin’s worker’s comp laws? The penalties for noncompliance are severe. Under Wis. Stat. § 102.28(5), if a worker is injured, the employer will be held personally liable for uninsured benefit claims for which the employee is eligible. Depending on the severity of the injury, that could be absolutely catastrophic for an employer.

However, the worker’s comp statutes go even further by expressly disallowing any exemptions of property from seizure and sale an employer might otherwise have. That includes a host of exemptions designed to protect individuals from future financial ruin such as exemptions for retirement benefits, life insurance, college savings accounts, and home equity. Notably, the statutes provide that if the employer is a corporation, the officers and directors will be individually and jointly liable for any portion of a judgment that is unsatisfied after execution against the company. Therefore, if liability for a worker’s comp claim cannot be satisfied out of the corporation’s assets, the DWD can proceed against the personal property of the officers and directors. Insulation from personal liability is often a primary reason individuals elect to operate businesses as entities rather than individually, but failing to obtain proper worker’s comp insurance coverage can render that distinction meaningless and result in the loss of the officers’ and directors’ personal assets.

Beyond Paying Expenses

Apart from liability for injuries, penalties, fees, and other statutory enforcement mechanisms can have a tremendous impact on an employer. For instance, in addition to imposing monetary penalties, a court may order an employer to perform or refrain from performing acts necessary to fully protect and effectuate the public interest, including ceasing business operations. Additionally, the DWD may order an employer to cease operations until it complies with the coverage requirements in the statutes, and failing to follow such an order is a Class I felony. In other words, one penalty for failing to obtain proper worker’s comp coverage could result in the temporary or permanent shuttering of your business and criminal liability.

There are also fines based on the length of time an employer failed to comply with the statutory requirements. An employer may be fined between $100 and $1,000 for noncompliance for less than 11 days and between $10 and $100 per day for noncompliance for more than 10 days. Repeat offenders are treated even more harshly under the law and can face even stiffer penalties and imprisonment of up to nine months in certain circumstances. Those issues are just some of the fees, penalties, and complications that can result by not fulfilling the relatively simple task of complying with Wisconsin’s worker’s comp laws.

Bottom Line

Clearly, complying with Wisconsin’s worker’s comp laws is in your best interest and the interests of your employees, directors, officers, and shareholders. The best practice is to work with your insurance broker and attorneys to ensure that you have the proper coverage in place and to timely inform them of events that could produce a claim under your worker’s comp policy.

This article, slightly modified to note recent updates, was featured in the July 2017 issue of the Wisconsin Employment Law Letter, which is co-edited by Axley Brynelson Attorneys Saul Glazer and Michael Modl and published by BLR®—Business & Legal Resources. Reproduced here with the permission of BLR®—Business & Legal Resources.