The Risky Results of Saying "No" to Workers Comp

Workers comp premiums rise fast at growing organizations -- the more employees they have, the higher their premiums jump. And at a quickly scaling organization, the result can be a pretty big unexpected expense at the end of the year.

In the face of such rising employee-benefits costs, some employers are choosing to limit benefits, or forego purchasing workers’ comp insurance altogether.

But, the latter decision comes with a new set of risks, which can be even more costly than providing workers compensation in the first place. Here are the results that business owners should carefully weigh:

1. Accountability laws

By law, employers are required to provide financial assistance to workers injured on the job. If they don’t, they risk costly lawsuits.

Right now, this requirement is all too real for Uber, which in August was sued in a class action brought by one of its California-based drivers after he was allegedly attacked on the job by a customer. The result is that the company is seeing a big drawback of its decision to classify its workers as independent contractors instead of employees.

That controversial decision may be helping Uber avoid insurance costs, but it's also removed valuable protections for its drivers -- leading to results like the recent lawsuit.

The California Labor Commission back in June ordered Uber to pay the driver $4,152 in reimbursable business expenses, determining that its drivers are better classified as employees due to the technology platform’s involvement in the employment relationship. Though the platform does not control the specific hours the driver works, it does assign the driver customers.

2. Out-of-pocket employee injury costs

Sure, workers comp insurance premiums are rising. Citing another California-based development, the San Francisco Business Times reported that the premium total in that state jumped $1.1 billion last year, as calculated by the California Workers’ Compensation Institute. But, employers shouldn’t let this deter them from looking at the big-picture costs that come from leaving a business unprotected.

At first thought, it may seem like paying out-of-pocket for any employee injuries is a better option. But, paying small regular fees for workers comp insurance is still likely to be cheaper than an unexpected out-of-pocket expense, with the right benefits administration program.

Businesses spend about $170 billion a year on occupational injury costs, and those expenses come straight out of company profits, according to the U.S. Department of Labor.

Workers’ comp insurance premiums cost range from 88 cents per $100 of payroll in North Dakota to $3.48 per $100 of payroll in California, data from the Oregon Department of Consumer and Business Services shows.

So, one employee making $50,000 annually working in California will run a company about $1,740 in workers comp insurance -- which is much cheaper than paying for that employee’s injury costs, which could run to $38,000, the National Safety Council estimates.

Businesses would be wise to use a scalable system to track your workers comp premiums as your company grows. Benefits administration technology should be able to adjust your premium costs directly, based on your payroll, as you add more employees. That way, you can pay as you go rather than be forced to pony up an unexpected expense at year’s end.

3. Lower employee morale

Only a little more than half of employees who work for small establishments (50 employees or fewer) have access to medical benefits, according to The Bureau of Labor Statistics. That’s not great, considering that benefits play a big role in employee engagement.

In fact, 63 percent of respondents in the Society for Human Resource Management's 2014 study of 1,000 U.S. employees said that benefits were a “very important” factor in employee engagement -- and 27 percent saw the presence of benefits as directly linked to job satisfaction.

The cost of not providing workers’ comp, then, can run much deeper than financial inconvenience. The lesson is that you should provide workers comp from the start to show workers their safety is valued. Employees need to know an organization is willing to take care of them, or they may not stay long.

4. No peace of mind.

In the long run, lack of workers comp insurance will only cause employers stress they don’t need. Having to face big unforeseen costs is much worse than paying small regular fees to protect a business.

Depending on the state, federal regulations may also impose penalties on employers who fail to offer workers comp. In some cases, California being one of them, company leaders who fail to provide coverage may face jail time, according to the California Department of Industrial Relations.

In other states, New York for example, failure to comply results in a $2,000 penalty per every 10 days of noncompliance, according to the New York State Workers’ Compensation Board.

Workers comp premiums may be rising, but with the right benefits administration technology, employers will be able to better control costs so they can protect employees and themselves.

What are some other ways employers put themselves at risk without workers’ comp insurance?