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Legal Perspectives By Thomas R. Beveridge Wolf, Baldwin & Associates, P.C.
New business owners in Pennsylvania often inquire about the necessity of workers’ compensation insurance, especially in circumstances where the business is a sole proprietorship, partnership or small corporation. In general, all employers must have workers’ compensation insurance if they employ one or more employees. However, several narrow exceptions exist to this rule of thumb. This article will explore the requirement of coverage, these exceptions and the penalties an employer could face for failure to properly carry workers’ compensation coverage.
The Pennsylvania Workers’ Compensation Act (“the Act”) requires that every employer who may be required to pay workers’ compensation wage loss and/or medical benefits for an injured worker pursuant to the provisions of the Act carry workers’ compensation insurance, unless the employer is exempted from carrying such coverage by the Department of Labor and Industry. 77 P.S. §501(a). An employer may acquire this insurance through the insurance company of its choice (as long as the insurance carrier is properly authorized to provide such coverage in Pennsylvania) or the State Workmen’s Insurance Fund (SWIF). However, where an employer can demonstrate to the Department of Labor and Industry that it is financially capable of paying any compensation that may be required under the Act, it may be authorized by the Department to “self-insure” — in whole or in part — its liability for work injuries. The Department will review this permit each year to assure compliance and grant acceptable companies its permission to continue their self-insured status.
In certain limited circumstances, an employer need not maintain workers’ compensation insurance in Pennsylvania. These circumstances include businesses where:
• all of the employees are Federal workers, Longshoremen or railroad workers;
• workers are granted an exemption under the Act because of religious beliefs;
• workers are considered executive officers and granted exclusion by the Department of Labor and Industry;
• the only worker(s) is/are a sole proprietor or general partners;
• the work is conducted by independent contractors (NOTE: The determination of whether or not a worker qualifies as an independent contractor or is actually an employee is beyond the scope of this article. However, please see our website, www.wolfbaldwin.com, for additional information pertaining to this issue.);
• the work is conducted by licensed real estate salespersons or associate real estate brokers affiliated with a licensed real estate broker or, in the case of the insurance industry, licensed insurance agents affiliated with a licensed insurance agency — so long as any such people work under a written agreement providing compensation on a commission only basis and they qualify as independent contractors pursuant to State and Federal tax regulations;
• agricultural workers earn below $1,200.00 and work no more than 30 days per calendar year;
• the employer’s spouse or children under the age of 18 perform the work and have not filed to be included under the Act by sending the Department an express written contract for hire. This is an interesting provision in that it requires action by a potential employee in order to be included in coverage. Casual employees work infrequently and are not involved in the employer’s regular course of business;
• the work is performed by workers from home or some other location that the employer has no control over and who are involved only in the make up, cleaning, washing, alteration, ornamentation, finishing, repair or adaptation for sale of a product; and,
• the worker performs only domestic services (i.e. a babysitter).
Unless an employer is clearly exempt from providing workers’ compensation coverage, the premium for coverage is a small price to pay in light of the possible civil and criminal penalties the employer and its owner(s) could face for violating the Act. Pursuant to 77 P.S. §501(b), an employer who is convicted of failing to carry the required workers’ compensation insurance could be found guilty of a misdemeanor of the third degree, or, if its failure to insure is found to be intentional, a felony of the third degree. A misdemeanor conviction could result in a fine of up to $2,500.00 and one (1) year in prison for each day that the employer failed to carry the required coverage. If the employer is convicted of intentionally failing to carry the required coverage, a felony conviction could result in a $15,000.00 fine and up to seven (7) years imprisonment, again, for each day the employer is found to have intentionally violated the Act. Additionally, the judge may order restitution to the paid to the injured worker where he or she has already obtained an award of compensation through the Pennsylvania Workers Compensation Bureau. If no such award has been secured yet, the injured worker has the option to sue the employer civilly instead of under the Pa. Workers’ Compensation Act.
The Pennsylvania Department of Labor and Industry posts a listing of those employers who were convicted of failing to properly maintain workers’ compensation insurance at www.dli.state.pa.us. Reviewing the list, one can see the potential ramifications of overlooking this critical aspect of conducting business in Pennsylvania. For instance, in April 2008, a Philadelphia employer pleaded guilty to one (1) misdemeanor count of failing to properly carry workers’ compensation coverage. The owner of the company was placed on one (1) year probation and ordered to pay a $500.00 fine. He then closed his business, which follows the particular pattern of most employers found guilty of failing to carry the proper workers’ compensation insurance.
Although the foregoing is an example of a minor violation, other employers have faced much more severe penalties. In January 2008, a Bucks County employer and its owner pleaded guilty to nine (9) third degree misdemeanor counts. The owner was ordered to pay over $93,000.00 in restitution to an injured worker and the costs of prosecution. Also, the company’s owner was placed on seven (7) years probation. Once again, the company closed its doors following this conviction.
As you can see, if a company or individual intends to conduct business in Pennsylvania, one of the critical questions that must be addressed is whether or not workers’ compensation insurance is required. Before hiring any employees, all businesses should consult with their attorney and insurance agent to ensure full compliance with the law.
Thomas R. Beveridge, Esq., is an associate in the Pottstown law firm of Wolf, Baldwin & Associates, P.C. The firm regularly counsels business clients as well as providing representation for injured workers. Mr. Beveridge can be reached by phone at 610.323.7436, or by e-mail at tbeveridge@wolfbaldwin.com. |
