I get asked often about when worker's compensation is required and the general answer is anytime there's an employee working. The employee can be part-time, full-time, seasonal, your sister's cousin visiting, or most other non-officers/owners that you can think of. In fact, Minnesota's worker's compensation law is so inclusive, that as an employer, it's a major mistake to trust anyone suggesting you don't need coverage unless they work for the Minnesota Department of Labor & Industry.
Even then, I highly suggest you receive a letter so you have it in writing. One trap many employers fall into is thinking that if they call employees independent contractors that they can avoid worker's compensation (and other employee costs). This thinking can come back to bite, and bite really hard when the state (or the IRS) decides you were mistaken and now you owe for all the back taxes, FICA, and other deductions you were required to withhold from paychecks.
Keep in mind that just because you and someone else agree that they're not an employee, the IRS (and Minnesota can use a different criteria and often does) can decide that both of you are wrong and an employee / employer relationship exists. It's important to clarify your standing ahead of time, because the cost of finding out after the fact is incredibly high. There are many situations where it's better to ask for forgiveness than permission, but this isn't one of them.
The fine for a claim while not having worker's compensation in Minnesota can cost the employer 65 percent over and above the medical costs. According to Minnesota's Department of Labor & Industry, Minnesota Statutes 176.181 gives the commissioner of the Department of Labor and Industry the authority to enforce the mandatory coverage laws. Minnesota Statutes 176.184 is one of the provisions detailing the commissioner's powers of enforcement. These include the ability to enter and inspect a business and its records, take depositions, issue subpoenas and order the production of documents to determine if insurance coverage as required by law exists. If the inquiry reveals inadequate or nonexistent coverage, the commissioner's representative will continue the investigation and determine what action, if any, is appropriate.
The good news is that it's easy to gain coverage, and in fact, most of the time, one call to 1 Reason can set in motion a policy to have your business covered within two business days, even if you been turned down before. 1 Reason Insurance won't go so far as to say we guarantee you can get coverage, but we've never had a case that couldn't get coverage within three days. Each state is different, but in Minnesota, the premiums are competitive and we're experts at using various strategies to get the best rates for your overall insurance requirements.
Who is required to have workers’ compensation insurance? Every employer, except the state and its municipal subdivisions, is required to have workers’ compensation insurance through an insurance carrier licensed in Minnesota or obtain a written order from the commissioner of the Minnesota Department of Commerce permitting the employer to selfinsure for workers’ compensation liability – see www.revisor.mn.gov/statutes/?id=176.181.
Who is considered an employer or employee? For purposes of workers’ compensation law, an employer is generally defined as an individual or business that hires an individual to perform services. An employee is any individual who performs services for another, for hire, including minors, part-time workers and workers who are not citizens. A person who employs a child care provider (nanny) or other person (domestic) to work for them at the person’s home may be required to have workers’ compensation insurance. Visit www.revisor.mn.gov/statutes/?=176.011 for more information about employee status.
What about independent contractors? Information about workers’ compensation and independent contractors is available at on the Department of Labor and Industry’s website at www.dli.mn.gov/WC/Indpcont.asp.
What are the consequences for failure to obtain workers’ compensation coverage? The consequences for employers, including corporate owners or officers, that fail to obtain workers’ compensation insurance coverage for their employees include civil penalties and liability for the workers’ compensation benefits and medical treatment for employees injured on the job. Additionally, an employer that willfully and intentionally fails to obtain workers’ compensation coverage is guilty of a gross misdemeanor.
Are there exceptions to mandatory workers’ compensation coverage? There are limited exceptions to the workers’ compensation requirement, which are listed in Minnesota Statutes 176.041 – www.revisor.mn.gov/statutes/?id=176.041. For example, some business owners are not required to carry workers’ compensation insurance on themselves or certain relatives if specific requirements are met. Some officers of closely held corporations, some managers of limited liability companies and certain relatives are also excluded if certain requirements are met. Additional information about exceptions to the workers’ compensation requirement is online at www.dli.mn.gov/WC/PDF/sf0137.pdf and www.dli.mn.gov/WC/PDF/sf0138.pdf.
Does a business insurance policy include workers’ compensation coverage? A business insurance policy does not include workers’ compensation insurance coverage. Workers’ compensation insurance is a separate policy. If you are unsure whether you have this coverage, contact your insurance agent or insurance broker. Who can I call for more information? This fact sheet is not a comprehensive description of the workers’ compensation law or a substitute for legal advice. If you have questions about the need to obtain workers’ compensation coverage, contact an attorney, call DLI at (651) 284-5032 or visit www.dli.mn.gov/WorkComp.asp.