The New York State (“NYS”) Workers Compensation Board (“WCB”) is the administrative state agency charged with ensuring employees injured at work receive the treatment and wage replacement benefits they need to return to work or, if they can’t return, to live as close to how they would have before the accident. The NYS WCB must ensure that the Uninsured Employers’ Fund (“UEF”) is properly funded and that unscrupulous employers don’t shift their liabilities to the UEF. One way to do this is auditing payroll and income tax filings. It can also identify potentially uninsured employers through unemployment insurance (“UI”) claims and workers compensation insurance carrier filings or claims. The goal is to identify uninsured employers before an accident occurs and get them in compliance. But if you ignore the WCB’s efforts to help you, there might be severe consequences.
Do Not Ignore the WCB Coverage Inquiry
I am a small business owner, too, and I understand the tendency to put off addressing issues that need more research. I tell my clients to read their insurance policies each year, knowing that mine is in the “To Read” folder that I often carry with me. (I promise to start reading at least a paragraph each time I ride the subway, so I am no longer a hypocrite on this issue.) But notices from the federal, state, or local government, I respond to quickly. You must respond also.
Take Action on a Penalty Notice Immediately
If you misplaced the inquiry notice, forwarded it to someone else who failed to follow up, or otherwise failed to respond by the due date, the WCB’s computers will automatically generate a penalty notice for the periods in question. You will be presumed uninsured, and the penalties will be assessed at a rate of $2,000.00 for each 10-day period when insurance cannot be verified. It will now be up to you to prove that you either had insurance or were not required to provide it. You will typically have 30 days to provide the evidence, and it will often take longer than you think to gather it. DO NOT WAIT TO TAKE THESE ACTIONS:
- Call an attorney who has experience resolving penalties for failure to provide workers compensation and disability insurance to employees (and misclassified independent contractors). A lot of inexperienced attorneys and unqualified accountants will think this is an easy enough issue to resolve. They will send vague letters merely stating that you had no employees and weren’t required to get insurance. This will not be enough to rescind the penalties. You must prove your case–with documentary evidence. The days of no evidence are over. The WCB expects you to have documents, if only in electronic form, and you will be required to produce them.
- Begin gathering documents and evidence related to the penalty periods at issue. If you have insurance, you must produce your C-105 form or a policy declarations page showing the periods covered. If you do not have insurance, you can expect to produce your NYS-45 and IRS 941 payroll tax forms, your complete income tax returns for all years at issue, a list of vendors paid in each of those years, 1099-MISC forms, and other evidence of the true independence of your contractors.
- Forward all notices and penalty statements to your attorney. Your Application for Review of Penalties will not stop the penalties and interest from accumulating, so you will continue to receive notices and penalty statements. Sometimes, the WCB will request additional information, and you will want your attorney to know about this. He or she will better understand what the WCB is looking for and why, ensuring you produce only what is necessary to resolve this issue and without creating new ones. Those of us who do this work regularly know the WCB will look at all evidence you provide as if you are a lying, cheating employer that mistreats its workers. We can help tell your true story in a way the WCB can hear it. There are no guarantees, of course, but you might have a better chance of resolving the issue with the help of an attorney.
- Set up systems to ensure continued compliance. Even if the WCB rescinds the penalties assessed against you, there was clearly something wrong in your systems that you got the penalty notice. Work with your attorney, accountant, insurance broker, and management team to ensure you have effective processes when hiring and firing employees, subcontracting work, or working with vendors.
- Pay penalties early, even if this requires a payment plan. You have other business concerns that demand your attention. Set up the payment plan–and a system to ensure the payments are made consistently until the balance is paid in full–so you can focus on a better future. Learn your lesson, make amends, and move on as quickly as possible.
NOTE: This post is a general overview of the defenses to workers’ compensation (“WC”) penalties for failure to secure WC 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 make an appointment to discuss it with an attorney. Don’t rely solely on what you read on the Internet.
Concerned you’ve misclassified workers? Let’s review them
For more on worker misclassification risks, see:
- What Are My Risks When Hiring a Freelancer?
- Nance L. Schick Talks to A Place for Mom About Caregivers Suing
- Advantages and Disadvantages of Working With Independent Contractors
Nance L. Schick, Esq. is an attorney, mediator, and conflict resolution coach whose goal is to keep you out of court and build your conflict resolution skills. She helps managers and business owners talk to employees about difficult issues such as gender, race, religion, and disability. She also negotiates penalty settlements for employers who unintentionally misclassify their workers. She is creator of the Third Ear Conflict Resolution process, author of DIY Conflict Resolution: Seven Choices and Five Actions of a Master, and an award-winning entrepreneur, who has been acknowledged by Super Lawyers, the New York Economic Development Corporation/B-Labs, U.S. Chamber of Commerce, Enterprising Women Magazine, Urban Rebound NY/Count Me In, The Kauffman Foundation, and more.