Business owners face numerous hurdles as they strive to be successful in their fields. Whether it is difficulty obtaining adequate capital, issues with employees, trouble reaching the target market, or simply a competitive market, businesses operate in an environment that is fraught with danger. It is no wonder then, that Workers’ Compensation insurance can become a blind spot for many business owners. Indeed, many business owners are surprised to learn that they are required to carry workers’ compensation insurance. The failure to carry Workers’ Compensation insurance, however, can be devastating to a business.
Workers’ Compensation is a statutory claims system established by Chapter 97 of the North Carolina General Statutes, also known as the Workers’ Compensation Act. The purpose of Workers’ Compensation is to provide compensation to employees who have lost an ability to earn wages due to an injury by accident sustained in the course and scope of their employment.
Workers’ Compensation is seen as a quid pro quo between an employer and an employee. In a way, Workers’ Compensation favors an employee, because claims are adjudicated under a “no fault” standard. This means that an employee doesn’t have to show that he or she was injured due to her employer’s negligence. Also, in most cases, an employee’s negligence will not disqualify him or her from receiving Workers’ Compensation benefits. In exchange for consenting to this “no fault” standard, an employer is granted limited liability on each claim. Specifically, recovery is limited to three types of disability benefits (1) Temporary Total Disability; (2) Permanent Partial Disability; and (3) Total and Permanent Disability.
Temporary Total Disability (TTD) consists of payments in the amount of two-thirds (2/3) of the employee’s average gross weekly wages and full payment of medical bills. Termination of TTD benefits is generally dictated by when the employee can return to work and can last up to 500 weeks, although the Industrial Commission has the authority to extend payment beyond 500 weeks in exceptional cases.
Where an employee suffers permanent, but not total, damage to a body part, the employee may also be entitled to Permanent Partial Disability (PPD) benefits. These benefits are awarded where an employee suffers injury to a body part and, although he or she has mostly recovered, the employee is not expected to regain full functionality. The PPD amount is calculated according to a formula that accounts for two-thirds (2/3) of the employee’s average weekly wage, the specific body part injured, and the extent of the permanent disability. PPD must be paid, regardless of whether the employee returns to work.
Finally, in extreme cases, an employee may be entitled to receive benefits for Total and Permanent Disability (TPD). TPD payments are reserved for the most severe injuries, including: loss of at least two appendages (excluding toes and fingers), spinal injuries involving paralysis, severe head injuries resulting in impaired cognitive function, and 2nd and 3rd degree burns covering 33% or more of total body surface. TPD compensation includes payment of all medical bills and two-thirds (2/3) of the employee’s average weekly wage and generally lasts for the rest of the employee’s life.
Whether the employee is receiving TTD, PPD, or PTD, however, he or she is not entitled to receive payment for other damages such as pain and suffering.
Under North Carolina law, any employer that regularly employs three or more employees is subject to the provisions of the Workers’ Compensation Act and must carry Workers’ Compensation insurance.
The statutory definition of an employee for purposes of the North Carolina Workers’ Compensation Act is broad. Essentially, any person engaged in employment under any appointment or contract of hire will generally be considered an employee. The only real limitation to the definition is that persons whose employment is “both casual and not in the course of the trade, business, profession, or occupation of his employer” are not considered employees. There is no bright-line test for this limitation; however, the Industrial Commission appears to focus on consistency of the employment. Employment tends to be considered “casual” when it is irregular, unpredictable, sporadic, and brief in nature. Of particular note, executive officers of corporations are automatically included toward the employee count. In contrast, sole proprietors, members of LLCs, and partners are not automatically counted toward their respective organization’s employee count.
Generally speaking, Independent Contractors are not considered “employees” for purposes of the Workers’ Compensation Act. Thus, if a business regularly employs less than three people and uses Independent Contractors for most work, it might not be required to carry Workers’ Compensation insurance. However, simply referring to Independent Contractors as such and issuing Form 1099s for tax purposes is not sufficient. The Industrial Commission can still determine that what a business calls an Independent Contractor is actually an employee. The key to that determination is the level of control exercised over the Independent Contractor. If a business dictates the hours, methods, and materials used by the Independent Contractor, the Industrial Commission is likely to determine that the Independent Contractor is actually an employee.
If a business fails to carry Workers’ Compensation insurance, it will most likely receive a citation and a potentially severely penalty from the North Carolina Industrial Commission. Dealing with the penalty can cause a disturbance in business operations and represents an unnecessary use of time and resources, including attorney’s fees.
If an employee gets injured and the business does not have Workers’ Compensation insurance, the consequences can be dire. The Commission is empowered to impose the full liability for the injury personally upon any person who had the authority to obtain Workers’ Compensation insurance coverage. Stated differently, business owners, officers, directors, and managers are likely to become fully liable for an employee’s injuries and wages if the business does not have Workers’ Compensation insurance coverage. Moreover, if the Commission determines that the business willfully failed to carry Workers’ Compensation insurance, it can refer the case to the local District Attorney for potential criminal prosecution.
Therefore, for both business and personal reasons, it is imperative that businesses comply with their obligations under the Workers’ Compensation act. Here at Bennett Guthrie Latham, we have unfortunately seen many businesses struggle to stay in operation as a result of excess costs arising out of unnecessary and avoidable Workers’ Compensation issues.
The attorneys at Bennett Guthrie Latham PLLC have decades of combined experience representing employers with respect to all facets of Workers’ Compensation. If you or your business have received an uninsured Workers’ Compensation penalty assessment, have had a Workers’ Compensation claim filed against you by an employee, or are merely interested in proactively protecting your business from unnecessary liability, the attorneys at Bennett Guthrie Latham PLLC are ready to assist you.