What Business Owners Need to Know About Workers’ Compensation Insurance

Employers frequently contact the SC Workers’ Compensation Commission to ask, “Do I need workers’ compensation insurance?” As a rule of thumb, any employer in South Carolina who regularly has four or more workers full-time or part-time is required to have workers’ compensation insurance. However, there are exceptions, as outlined in the SC Code of Laws Title 42. Some exceptions include: agricultural employees; casual employees; state and county fair associations; railroads and railway express companies, and employers who have a total annual payroll of less than $3,000, regardless of the number of workers employed during that period. Also exempt are owner-operator drivers and certain commission-paid real estate agents, which meet specific threshold requirements.

The definition of casual employee is often interpreted too loosely. Employment is casual when it is not permanent or periodically regular but occasional or by chance and not a usual course of the employer’s trade or business. Case law provides that if an employee is doing a task within the business, trade, or occupation of his employer, the employee is not casual, even if the duration of employment was brief and isolated.

What are the benefits of workers’ compensation insurance for employers and employees?

Workers’ compensation pays for a portion of lost wages and medical care provided to employees who are injured on the job. Workers’ compensation also compensates employees who suffer permanent disability or disfigurement. It is a no-fault approach which limits the employer’s liability to those benefits provided by the Workers’ Compensation Act. It is an inclusive remedy for on-the-job injuries. Failure to carry workers’ compensation insurance can open business owners up to great liability risks. Small businesses in particular are at a risk, as they tend to have fewer assets available and cannot afford to pay for a costly on the job injury.

How does the Commission become aware of a possible coverage or compliance violation?

Discovery of coverage or compliance violations stem from a compliance investigation. The purpose of a compliance investigation is to determine whether or not the business has coverage and, if not, whether the business was subject to the Act and in non-compliance. There are three situations that would cause the Commission to initiate a compliance investigation on an: a wage record audit, a claim filing, or an investigative request.

A majority of the Commission’s compliance investigations result from random audits of wage records obtained from the South Carolina Department of Employment and Workforce. The Commission routinely audits the employment records of businesses within the State to verify that employers who are subject to the Act acquire and retain workers’ compensation insurance coverage. During this process, the Commission’s database randomly pulls the information of employers who, based on their number of reported employees, are required to carry workers’ compensation insurance. At that point, if no insurance coverage can be found, the wage records are reviewed to see if a violation occurred.

A compliance investigation can also be initiated through a claim filing. If a worker is injured on the job and their employer does not report the accident, their employer denies the injury occurred as the result of an accident, or they believe they did not receive all of their benefits, then they may file a claim. To file a claim the injured worker must submit a Form 50 to the Commission. Forms can be found on the Commission website, www.wcc.sc.gov. Upon receipt of a Form 50, the coverage division searches the National Council on Compensation Insurance Proof of Coverage database to verify that the named employer(s) has workers’ compensation insurance coverage for the date of injury. If coverage is not initially found, the compliance division will conduct an investigation to determine if the business was subject to the Act and in violation.

In instances of a claim where the employer has been determined to be subject to the Act, but has failed to carry workers’ compensation insurance, the South Carolina Uninsured Employers Fund (UEF) will be added as a party to the claim. They will then either pay or defend the claim, as they consider necessary. If benefits are ordered to be paid by the UEF, they may place a lien against the assets of the employer to the full extent of all costs, expenses, and benefits paid. To establish and maintain the UEF, a portion of the tax on insurance carriers and self-insured persons goes towards their budget. Their purpose is to ensure payment of workers’ compensation benefits to injured employees whose employers have failed to acquire necessary coverage for employees.

The final way that a compliance investigation would be initiated is by request. The compliance division occasionally receives requests for an investigation of an employer. These requests come from a variety of sources ranging from competitors to disgruntled employees or customers to stakeholders. After they provide the employer information, we begin our compliance investigation to determine if a violation has occurred.

What if an investigation determines that my business is in violation?

If an employer is found to be subject to the Workers’ Compensation Act and in noncompliance, they may be assessed a fine for failure to carry appropriate insurance. The fine and penalty will be calculated based on the period of noncompliance. Once coverage is obtained and proof of compliance is provided to the Commission, it may be possible to reduce the amount of fines and penalties that have been assessed. In the event the Commission determines a coverage or compliance violation has occurred, all parties are entitled to a hearing before a Commissioner. The purpose of such a hearing would be to determine whether the employer was in violation and the appropriate amount of fines and penalties to be assessed.

Further questions regarding coverage requirements should be directed to the Compliance Division at compliance@wcc.sc.gov. Additional information may be found at the Commission’s website, www.wcc.sc.gov.