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In an effort to raise money in this recession, New York State has issued hundreds of penalties to small businesses for failing to have workers’ compensation insurance. In fact, the New York State Workers’ Compensation Board entered judgments against approximately 10,000 small businesses. These judgments are millions of dollars. While it is fair to penalize employers for failing to carry worker’s compensation insurance, the exorbitant amount of money that New York State is penalizing employers does not seem fair. For example, if a small business did not a carry worker’s compensation insurance policy which is typically approximately $500.00, New York State may have fined that same small business employer over $50,000.00 for this violation. Among the businesses hit with the judgment was Al Franken, former Star of Saturday Night Live and current Minnesota Senator. While there is an important policy reason for employers to carry worker’s compensation insurance to protect employees and so that the costs are proportionately spread among all employers, these level of draconian penalties are causing employers to close their operations and terminate any employees they may have had. In the end, employees are losing their jobs, small businesses are closing and New York State is stuck referring the judgments to debt collectors to collect these improbable amounts.
Under the New York State Workers’ Compensation Law, employers are required to carry insurance for employees for work-related accidents, injuries or illness. In general, if an employer has one full-time or part-time employee, the employer is required to obtain a workers’ compensation insurance policy. The following employers are exempt from coverage:
- The business is owned by one person and said person holds all corporate office titles
- The business is owned by two corporate officers and they hold all of the corporate office titles and are the only employees.
- All businesses with three or more shareholders or corporate officers must have workers’ compensation insurance coverage and are not exempt.
In one of the hardest provisions for employers, if a well-intentioned family member (including a spouse or adult child) works for the business and even if the family member does not collect a salary, that family member is considered an employee by the Workers Compensation Board. The Workers Compensation Board strongly scrutinizes small businesses that utilize independent contractors and may consider them employees depending on the circumstances. Simply calling an individual an independent contractor is not a sufficient basis for not carrying worker’s compensation insurance coverage.
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