Changes to North Carolina General Statute 97-94, Revisions to Penalties for Failure to Hold Workers’ Compensation Insurance

18 Dec 2019 10:48 AM | Deleted user

By Kaitlyn Haran, McAngus Goudelock & Courie

On June 14, 2018, the North Carolina House of Representatives voted on the Appropriations Act of 2018, otherwise known as SB 99. This new bill brings about a big change for Worker’s Compensation Penalties per N.C. Gen. Stat. §97-94, which discusses the Employer Penalty Section and comes into effect July 1, 2018.

Current Law

N.C. Gen. Stat. §97-94 lays out the penalties for failing to comply with §97-93, which states employers are required to carry insurance or prove financial ability to pay for benefits. If the employer refuses or forgets to do this, they are punished by a penalty. This penalty is one dollar for each employee, but not less than fifty dollars or more than one hundred dollars, for each day of refusal or neglect until it stops. Moreover, if an employee is injured during this time, the employer is liable for compensation for that employee. This means if you have 10 employees, and forget to get insurance for one year, you could be liable for $50 per day for 365 days, resulting in an $18,250 penalty. If you have 150 employees for one year, you could be liable for $100 per day for 365 days equaling a penalty of $36,500.

If an employer is found to have violated this, the penalty may be assessed by the Industrial Commission, and the employer has a right to a hearing within thirty days of the notice of noncompliance. The Attorney General enforces this and if the employer willfully fails to secure compensation, they will be guilty of a class H felony, and if they neglect to secure compensation, they are guilty of a class 1 misdemeanor. If you know about the noncompliance and have the ability and authority to get the employer to comply, and you willfully do not, you will be guilty of a class H felony. If you simply neglect to do so, you are guilty of a class 1 misdemeanor. Moreover, you could be liable for a civil penalty up to 100% of compensation due to an injured employee during the time of disobedience. 

The Industrial Commission does have the ability to suspend or remit the penalty however, if the employer pays the compensation due and complies with N.C. Gen. Stat. §97-93.

New Law

The new law changes the penalty section of the current law. Section (b1) of the new law states instead of not less than fifty dollars, it is not less than twenty dollars and not more than one hundred. Using the same analogy as above, if the employer has 10 employees and forgets insurance for one year, rather than a penalty of $18,250, their penalty is $7,300. However, if you have 150 employees, the penalty remains the same as above.

Section (b2) now offers an alternative to this that was not available before. The employer may submit to the Industrial Commission proof they have obtained insurance and all payroll records for the period of noncompliance. The Commission shall verify the coverage and rescind the (b1) penalty and instead assess a new penalty. The new penalty will be calculated by first determining the cost per employee for insurance. This is done by dividing the cost of the policy by the number of employees. Then, they will determine the average number of employees during the penalty period. Finally, they will multiply the cost per employee during the period by the average number of employees during that time. The Commission will use that number plus an additional ten percent as their new penalty.

For example, under this section, say the worker’s compensation insurance costs $1000 and you currently have twenty employees, you divide 1000 by 20. This is $50. If you had 10 employees during the period of noncompliance, you take 50 times 10 and get $500. Then you add an additional 10% of this, $50, and your total fine is $550. The number of days you were disobedient does not matter. Therefore, if it lasted a year, you still only owe $550 rather than the $18,250 that it was. Keep in mind however; this is only available to an employer who has not previously been penalized under this section.

Again, the employer has a right to a hearing if requested within 30 days after notice and sections (b1) and (b2) the penalty shall not apply to a period that occurred more than three years prior to the date the Commission first assessed the penalty. The employer also continues to be liable for compensation of the injured employee during the penalty period as well, and the criminal charges remain the same. The Commission still has the authority to suspend or remit collections if employer pays any compensation due and complies with §97-93.

How Law has been applied in Past Year

Since the law has passed, there have been several cases at both the Deputy Commissioner Level and Full Commission wherein the issue includes whether there should have been a penalty assessed by the Commissioner at all. However, there have not yet been any cases wherein the parties fight over what the penalty should be and how it should be calculated. The typical course of action has been for the Courts to apply the penalty using the b(1) penalty unless the Defendant specifically requests the penalty be calculated under b(2). As such, it is important to request the Court asses the penalty under b(2) so that the potential reduction applies.

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