The New York State Workers’ Compensation Board does not currently have a voluntary disclosure program for employers who discover:
- Their WC insurance policies lapsed.
- Their WC insurance policies do not include NY employees.
- They misclassified their employees as independent contractors.
- Their vendors are not independent businesses.
- Their homeowners insurance policies do not cover their full-time nannies.
The Board and its Advocate for Business indicate that employers must wait for a penalty notice before any action can be taken to remedy a potential error. The good news is that Compliance Bureau has gotten much better at tracking coverage and coverage lapses. You will often receive an inquiry notice:
- Immediately after your WC carrier files the C-105 Notice of Compliance, if the NYS Department of Labor or NYS Department of Taxation and Finance indicates you’ve paid any employees for uninsured periods
- After you file your first NYS-45 Unemployment Insurance tax return with the State
- If one of your independent contractors files for UI benefits and lists you as an employer, instead of a client
If you act quickly to respond to inquiry notices and to correct any errors, penalties can often be reduced or rescinded once you are in compliance with WC, disability, and Paid Family Leave insurance requirements.
In the interim, there are specific actions an employer can take to show that remedial action was taken immediately upon determining an error or violation of the law.
An uninsured employer can obtain workers compensation insurance to show reasonable action to correct a lapse.
If no workers’ compensation claim is filed against the employer during the periods of no insurance, and if the employer has never failed to insure its employees in the past, the penalty might be negotiated to a more affordable, yet still memorable amount. In the event the employer had coverage and mistakenly let it lapse, an explanation for the lapse will be required. Explanations might include:
- The insurance carrier improperly cancelled coverage.
- The insurance carrier failed to properly service the required Notice of Cancellation.
- The business with a long history of compliance only failed to maintain its policy during the period in which it was winding down the business and had a limited presence at the business address.
An underinsured employer can request an audit from its insurance carrier and pay any back premiums due to correct coverage errors.
Again, as long as there are no pending claims against the employer for work-related injuries during the period(s) in question and if the employer can show due diligence in correcting errors, a nominal penalty payment will often satisfy the Board.
An employer’s counsel can file an application explaining the reasons for no insurance or underinsurance.
Often the offending employers reasonably relied upon their accountants’ advice, and their accountants were misinformed on WCB and DOL criteria for distinguishing employees from independent contractors. At other times, the employers might successfully challenge recategorization of workers where the resulting premium adjustments were unduly expensive. You will basically want to prepare an argument that shows:
- The employer did what a reasonable employer of comparable size and structure would do in the industry where it operates (although being mindful that the “everybody else does it” argument is about effective with the Board as it was with your parents).
- As soon as an error was discovered, actions were taken to ensure the employer’s workers were covered for their work-related injuries.
This post is a general overview of the defenses to WC penalties for failure to secure WC, DB, and PFL insurance. It is not legal advice, and there is certainly no guarantee that any of the actions detailed above will generate a similar or specific result. Past success is never a guarantee of a future outcome. If you require information or advice applied to your unique situation, please consult counsel in each of the jurisdictions where you pay workers.
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Nance L. Schick, Esq., is a workplace attorney, ethno-religious mediator, and conflict resolution coach based in New York City. Her goal is to keep managers and small business owners out of court and build their conflict resolution skills so everyone has a better work experience. She is creator of the Third Ear Conflict Resolution process, author of DIY Conflict Resolution, and an award-winning entrepreneur acknowledged by Super Lawyers (ADR, 2018, 2019 & 2020), the New York Economic Development Corporation/B-Labs (Finalist, Best for NYC 2015 & 2016), U.S. Chamber of Commerce (2015 Blue Ribbon Small Business), Enterprising Women Magazine (Honorable Mention, 2014 Woman of the Year awards).