What Are the Penalties for Not Having Workers’ Compensation?

• Monetary Penalties

These penalties need to be paid in money and can cost financial loss to the organisations

Civil Fines

Employers failing to provide their employees with workers' compensation insurance must pay hefty fines. The amount of these civil fines can differ based on state laws and individual cases. Moreover, these amounts accumulate quite quickly, creating a big financial burden on businesses.

Daily Fines

In some jurisdictions, or severe cases, not having workers' insurance can lead to daily workers' comp penalty payments. This can worsen the organisation’s legal case and severely damage its finances.

Penalty Payment Amounts

The exact amount of monetary penalties differs depending on various factors such as the number of employees, the size of the organisation and the duration of time since the business failed to comply with the law. Thus, it is advisable to get workmen's compensation insurance to avoid such a situation.

Legal Penalties

Legal penalties for employers involve lawsuits and being penalised by the court for failing to fulfil their part of employee safety.

Legal Lawsuits

It is within the rights of injured employees to file a legal case against the employer if they are not covered under workers' comp insurance. These legal lawsuits can cause financial stress to the employer, as they may have to pay for the employee’s pain, suffering, emotional and physical stress and legal fees. Moreover, if proven, in some cases, the employer may also be labeled for punitive damages.

Medical and Lost Wage Costs

When an employer does not provide workmen's compensation insurance to employees, then the law can hold them personally liable to pay employees’ medical bills, injuries and lost salary. The cost of all these liabilities can seriously hit a company’s finances, especially if injuries are long-term.

• Criminal Penalties

In some cases, if the employer fails to provide workers' compensation, they may face criminal charges, which can include jail time.

Jail Time

Although it happens in rare cases, if the severity of employee injuries is high, then the employer or business owner has to serve jail time. Especially if it is proven that employee injuries are the
result of the employer’s deliberate negligence.

Non-Compliance Criminal Charges

Failure to register employees can also lead to criminal charges for employers. They can be charged for wilful fraud or neglect, especially if it is proven that employers did not provide coverage willingly.

• State Specific Penalties

State laws and regions can impose separate penalties for not having workers' compensation insurance.

State of Regional Government Actions

Every state and local government has their rules and regulations to deal with cases of not providing workers' comp insurance. Some states might show leniency to first-time offenders, while others might impose hefty fines on businesses. There are cases where the government has imposed a ban on business operations till they comply with the law.

Workers Comp Insurance Audits

Some state or local governments also hold annual audits of businesses to check whether they are complying with workers' compensation laws. If any business is found guilty of non-compliance, it must answer to the government.

• Increased Insurance Cost Payment

Once a company is blocked for not complying with the law of providing workers' comp insurance, it finds it difficult to get insurers.

Difficulty in Buying Insurance

Workman policy providers check a business's overall historical record before offering it insurance. If a business has a history of non-compliance with the Workmen Compensation Act, it is listed as a high-risk case. Thus, insurers might charge higher premiums or refuse to provide coverage at all.

Negative Experience Rating

Businesses that do not comply with workers' compensation law might also receive negative ratings. Insurance providers can give non-compliant businesses a negative experience rating, which leads to higher coverage premiums and scrutiny.

• Brand Image Damage

All the fines and legal lawsuits caused by not providing workers' compensation insurance also lead to public image penalties.

Damaged Business Image

The business has to pay the penalty for not having workers’ compensation insurance because of its damaged business image. Once it has been legally penalised and proven guilty; it loses the trust of employees and the public. This leads to less interest from investors, new talent and customers.

Destroyed Employee Trust

When employers do not provide workers' compensation insurance to their employees, it endangers their lives and livelihoods. It leads to a lack of trust between employees and employers and low work effort, which ultimately slows business growth.

Also Read: Types of Workers’ Compensation Insurance Policies

New India Assurance Company Ltd. vs Smt. Usha Devi And Ors. on 25 June, 2007

In Uttarakhand, in the year 2007, a group of drivers and workers resting in a tin shed during work hours were caught in the natural calamity of a landslide. It resulted in serious injuries and deaths. Their employer had insurance, but it only provided coverage to drivers under the Motor Vehicles Act, not under the Workmen's Compensation Act.

In the final decision of this case, the court decided that the insurance company is not liable to pay for injuries and loss of employees, as they were not included in the policy. Thus, the employer was held liable to pay the expenses of injuries to drivers and workers personally.

The case is a perfect example of how important it is to have workers' comp insurance for every employee, whether they are drivers or helpers. Moreover, it is crucial to have a clear understanding of the policy's coverage limit. This will ultimately help employers avoid incurring financial loss by paying compensation out of their own pocket.

There are several benefits for employers if they provide workers comp insurance to their employees.

Legal and Financial Protection

One of the major benefits of workers' compensation policy is that it provides legal and financial protection to employers. By enrolling their employees in workers' comp insurance, employers fulfil their legal obligations. So, even in the case of any workplace accident or injury, employers do not have to face legal penalties.

Moreover, the insurance pays for employees' injuries and medical bills, thus reducing the financial burden on employers.

Coverage Flexibility

When organisations take the voluntary initiative to buy workers' comp insurance for their employees, they can enjoy coverage flexibility. Organisations can choose the coverage amount and features according to the number of employees, their specific requirements, etc.

Improved Working Environment

With workers' comp insurance, employees are assured that their employer values their safety and security. This helps create a healthy employee-employer relationship and fosters a better work environment.

Also Read: How To Apply for Workers’ Compensation?

When employers have to pay compensation under the workmen's compensation policy, it is done by following certain conditions. The compensation calculation is done based on the employee’s age, average monthly salary and the nature of their injury. However, the calculation for compensation in case of disability or death of an employee is subject to a different calculation.

Moreover, when an employee loses their life during employment, their compensation is paid to a direct dependant or beneficiary.

Also Read: Workmen Compensation Claim Settlement Process

Employees are the backbone of any organisation, and a workmen compensation policy is the safety net of that backbone. That is why, penalty or not, having workmen compensation is important for any organisation. However, certain points should be considered while finalising the insurance. Such a policy should provide comprehensive financial assistance, disability benefits and death benefits to the beneficiaries. Moreover, policy wording should be clear and the claim procedure should be straightforward.

If you are looking for a reliable insurance provider for your organisation, then you must check out the wide array of TATA AIG SME Insurance Plans. Our business insurance includes several plans, such as workers' compensation, group health insurance, fire and burglary insurance, and marine insurance. Organisations can choose any of these plans as per their business and employee coverage requirements.

Is a Workmen Compensation policy mandatory in India?

Yes, workers' compensation insurance is mandatory for every organisation. Employers in India are obliged to provide financial support to their employees in case of workplace injuries, disablement or death.

What are the documents required for the Workmen's Compensation claim procedure?

These are the general document requirements for the workmen's compensation claim process:

• Duly filled and signed claim form
• Medical and hospital bills
• Medical disablement certificate
• Permanent disablement claim (if required)
• Medical certificate for temporary disablement
• Death certificate in the event of an employee’s death
• Postpartum report
• FIR (if required)

Who is eligible for workers' compensation?

Workmen's compensation insurance provides coverage to all employees who work under an employment contract of service, including both part-time and full-time employees.