Ryan McNeil|Generally speaking, in North Carolina an employer must provide workers’ compensation insurance coverage for its employees if it regularly employs three or more people. This coverage kicks in if the employee is injured on the job. Some small business owners do not realize they must provide the required coverage for their employees. Others make a conscious decision to avoid the related expense hoping they are not caught.
What is Workers’ Compensation?
The North Carolina Workers’ Compensation Act (§ 97, the “Act”) provides protection for employees injured by a specific event, afflicted by occupational disease, or killed during the course of their employment. This Act outlines the procedures the employee must follow to report the injury to the employer and the North Carolina Industrial Commission (NCIC, the state agency responsible for administering the Act). The Act also details required compensation for medical expenses and lost wages during the recovery period, payment for a permanent disability, or the award for lost wages and burial expenses to beneficiaries if the individual is killed on the job.
The Three Employee Rule
The biggest risk for small business owners is not understanding the three employee rule that triggers the requirement to maintain workers’ compensation insurance. Consider these requirements:
- You must include part-time employees in the count.
- Use caution when you classify someone as an independent contractor and issue a 1099. If the North Carolina Industrial Commission determines the individual should be properly categorized as an employee and not a contract worker, then you may be penalized for not having workers’ compensation insurance.
- Owners of an LLC or partnership are not treated as employees in the three rule count. However, for a corporation, the corporate officers are counted in determining coverage. Here’s an example: Let’s say you create a corporation and name yourself as a CEO. You have 1 part-time employee and at the bank’s recommendation, you name your spouse as a Treasurer or Vice-President to have signing authority on the account in your absence. According to the rules, you now have three employees and must carry workers’ compensation insurance.
Sole Remedy
Under the NC Workers’ Compensation Act, workers’ compensation is the “sole remedy” available to the employee or his/her dependents or next of kin (in the case of an on-the-job death). This means if the employer has complied with the Act’s provisions, the employee cannot sue the employer to recover damages related to the injury. The opposite also holds true: If the employer does not provide workers’ compensation insurance coverage, then the injured employee may sue the employer for damages, including pain and suffering (not available to the employee if the employer has workers’ compensation coverage). As an employer, this could ultimately cost the business much more than the cost of insurance premiums.
Retaliation for Filing a Claim
Employers cannot legally retaliate against an employee who files an injury claim. This includes terminating, demoting, or harassing the employee. Even if the employee was already on probation for performance at the time of the injury, I recommend you speak with a workers’ compensation attorney prior to taking any action against the injured employee.
What is the Penalty for Not Having Workers’ Compensation Coverage?
North Carolina is currently cracking down on businesses that fail to provide workers’ compensation coverage. Instead of waiting until an employee is injured to learn there is no coverage, they are proactively reviewing businesses to ensure coverage is in place. Consequences to the employer may include a daily fine for each day the employer has refused or neglected to purchase such insurance. If the employer willfully fails to purchase the insurance, then the employer is guilty of a Class H felony and could go to jail. If the employer’s failure to procure the insurance is simply neglect or lack of knowledge, then the employer is still guilty of a Class 1 misdemeanor. In addition, any person with the ability and authority to bring an employer into compliance can be held criminally liable and may be assessed a civil penalty in an amount of 100% of the amount of compensation due to an injured employee, including injury-related medical expenses and lost wages. As an example, if one partner in a business refused to purchase the required coverage, the other partner may possibly be held criminally liable, as well, depending on the circumstances.
Other Penalties
Employers who coerce an injured employee in an attempt to prevent their reporting a work injury may be charged with a felony. The employer may also be fined for failure to report a job-related injury, if payments are not made on time, or if they fail to notify the State and employee within 16 days of the final payment.
The North Carolina workers’ compensation laws are very specific and there may be hefty consequences for not following the law. I strongly recommend all business owners ensure they have workers’ compensation coverage in place and understand the specifics of the Act.
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