Most employers must purchase workers' compensation insurance if they hire employees. State law governs the minimum number of employees a business can have before the employer must purchase this insurance, as well as the penalties for not purchasing it, which include fines and criminal charges. Employers are also vulnerable to personal lawsuits from an injured employee if the worker is injured on the job and the company has no insurance.
States often establish criminal penalties for an employer who does not purchase workers comp insurance. For a first offense, the state of Missouri considers the lack of coverage a misdemeanor and can charge a fine of up to $50,000; a second offense is a felony in that state. In New Jersey, the state can charge each individual corporate officer with a crime.
A state may create a department to perform workers' compensation compliance reviews. Inspectors from this department check up on all employers in the state to determine whether they have current insurance that meets the state standards. The Oklahoma Worker's Compensation Court keeps a record of all employers with valid workers' comp coverage, and a worker can call the court to check if an employer has insurance.
A state usually prohibits an employer from using other types of insurance, such as health insurance or life insurance, as a substitute for workers' comp insurance. In Oklahoma, New Jersey and Missouri, the employer must purchase a specific policy that covers workplace injuries. Maine allows a farm owner to purchase employer's liability coverage instead of workers' comp insurance in some situations.
If a worker is injured and an employer has no insurance, the employer is liable for the worker's medical bills. Employers must reimburse the worker's temporary or permanent disability benefits if the worker receives these benefits from the state. Individual corporate officers are personally liable for the injured worker's medical costs and other bills, and a state can attach liens to an officer's property and garnish an officer's income, according to the state of New Jersey.
States may exempt certain types of employees from the workers' comp insurance requirement. When an employee owns a substantial share in a partnership or a corporation, states often exempt the employee from the requirement. Sole proprietors who have no other employees are also exempt from the purchase requirement. Missouri and Maine exempt domestic workers from the coverage requirement.