In the current economic climate, many Oregon businesses are exploring virtually every option to cut their costs. When it comes to workers' compensation insurance, however, some well-meaning businesses make choices that may save money in the short run but have very expensive, and sometimes permanent, long-term consequences.
Some companies, expecting to cease operations altogether, allow their policy to lapse while still conducting some business. Other companies attempt to reclassify their payroll employees as independent contractors. These are the two most common, and potentially costly, mistakes a business can make.
Oregon law requires every employer to purchase workers' compensation insurance. This law is enforced by the Workers' Compensation Division (WCD) of the Department of Consumer and Business Services (DCBS). WCD follows up on cancelled policies and assesses about $10 million in penalties for noncompliance in a typical year.
The consequences could be even more devastating for both employer and worker if an employee is injured on the job at an operational business with lapsed coverage.
According to Reg Gregory, manager of WCD's Employer Compliance Unit, employers are liable not only for the state-assessed penalty, but also for every cost associated with settling the claim, including all medical, legal, and claims administration expenses.
"Just picking something up off the floor can result in a ruptured disc, and suddenly the employer is on the hook for a penalty, on top of tens or hundreds of thousands in claim costs," he says.
Gregory adds that legal costs skyrocket quickly, and rarely is a claim settled for less than $2,500. "The investigators strive to find the noncompliance before a claim occurs and get businesses under the insurance umbrella before the storm breaks out."
"It's a lot cheaper to just stay insured," he advises.
The DOs and DON'Ts of cutting back
control your costs by improving your loss history and taking advantage of group, SAIFPlus, and prepayment discounts if available (see Comp News, spring 2009).
keep it small. If your total payroll is always less than $500 within any 30-day period, you are not required to cover your workers, since they are considered "casual workers" by state law. However, as soon as your payroll exceeds $500 over any 30-day period, workers' compensation insurance is required from that first day you employed any of those workers. Obtaining coverage later may leave you with a period of noncompliance for earlier periods you thought were casual labor.
check your subcontractors. If you are not required to have workers' compensation insurance, and subcontract out some of your work to others who do have subject workers, request a certificate of coverage to determine whether they have workers' compensation insurance before you hire them. Otherwise, you may be liable for claims against your subcontractor if a worker gets hurt on your project.
cut insurance for employed family members, unless they are exempt as casual laborers, business owners, or domestic laborers in your home.
offer rent exchange or any other non-monetary benefit without coverage. When people work in exchange for something other than money, the value is counted as payment and you must have coverage for them.
call your employees independent contractors. Even if the worker signs an agreement to this effect, 1099 tax forms and signed contracts may not be enough to establish independence according to state labor laws. Independence is established based on the circumstances of the work relationship, according to the law.
SAIF's Service Center for small business customers
888.598.5880 or 971.242.5001
Workers' Compensation Division
Employer Compliance Unit
503.947.7815
Employer Index (to verify if an employer has insurance)
503.947.7814
email wcd.employerinfo@state.or.us