At the 2019 SAWCA Annual Convention, a panel discussed how state regulators monitor employer compliance with regard to purchasing workers’ compensation coverage.
The panel was:
- Scott Beck – South Carolina Workers’ Compensation Commission
- Tanner Holloman – Florida Workers’ Compensation Commission
- Amanda Terry – Tennessee Workers’ Compensation Commission
- Stan Bexley – Georgia Workers’ Compensation Committee
- Bob Swisher – Kentucky Workers’ Compensation Commission
- Wayne Ducote – South Carolina Workers’ Compensation Commission
States uncover potential workers’ compensation premium fraud from multiple sources. These include:
- Some have their compliance system tied to state tax information so that if wages are paid by an employer who does not have workers’ compensation coverage they are flagged for review. Unfortunately most states are not this sophisticated.
- Competitors will often notify the state about companies that are underbidding them for contracts when they suspect those companies do not have insurance coverage.
- Regulators can access the NCCI database to see if employers have coverage.
- Tips from ex-girlfriends and ex-wives are a frequent source.
- For many states, the review is manual instead of through systems linked. The investigator will review state unemployment insurance contributions and cross reference those to their list of covered employers.
- Nothing beats old fashioned feet on the street and visiting worksites asking to see their proof of insurance is where most violations are found.
The states indicate their main goal is to gain compliance not issue penalties so they will usually give employers a chance to correct the violation and secure coverage before imposing fines or issuing stop-work orders. Most employers found in non-compliance are very small businesses that didn’t realize coverage was needed. However, some knew they were in non-compliance and were hoping to not get caught.
The penalties for non compliance include issuing fines and penalties and also issuing stop work orders until the employer comes into compliance. Jurisdictions often allow for criminal prosecution for premium fraud but this does not happen often.
Collecting penalties is a huge challenge as frequently these small employers simply dissolve the company and re-form under another name to get around the stop work order and try to evade the penalties. Many of the companies are so small and literally work out of a pickup truck and bringing them into compliance is almost impossible. One jurisdiction said it is not uncommon for only 5% of those issued a citation to actually show up for their hearing. The jurisdictions indicated they need more staff to pursue these non-compliant employers and also indicated their statutes lacks sufficient follow through in terms of criminal prosecutions to deter repeat offenders. Too many prosecutors don’t consider these small cases worth their efforts.
Some states use the funds collected from fining non-compliant employers to pay the claims from injured workers’ whose employers did not have insurance coverage. For other states those funds go into their general workers’ compensation commission budget or even the state general fund.
Fines vary greatly by jurisdiction. Some are based on the premiums that would be owed, others have a flat rate per day penalty, others have a mix of both.