Expert answers to all your business insurance questions.
What happens if I don’t get workers’ comp in Arizona?
Okay, so you’re gathering information about what it means to get a workers’ comp policy for your Arizona business. Fantastic. But you’re also probably wondering if you can get away with not having a policy. It’s a great question.
First things first: you should know that workers’ comp is required by Arizona law.
If you have at least one employee—full or part time—you need to get workers’ comp. (Questions? Read more about which businesses are required to get workers’ comp.) It’s the law. And if you don’t comply, you’ll be guilty of a Class 6 felony and could face some serious consequences.
Here’s what can happen if you don’t purchase workers’ compensation for your company:
You could be sued.
If you don’t carry workers’ comp for all eligible employees, an injured employee can file a civil suit against you for damages. You could be on the hook for medical expenses, rehabilitation costs, and the replacement of lost wages—in short, a case like this would likely be much more expensive than simply getting a workers’ comp policy in the first place.
Your employee could file a claim with the ICA.
Let’s say you forgot to get workers’ comp—and then one of your employees gets injured on the job. They can either sue you for damages (see above) or they can file a claim with the Industrial Commission of Arizona (also called the ICA).
The ICA is the watchdog that looks out for Arizona employees. In their own words, they’re “the agency that administers and enforces state laws relating to the protection of life, health, safety and welfare of Arizona's employees.”
So, if the ICA approves your employee’s claim, they’ll pay medical and compensation benefits to make sure the employee gets the support they need. But this doesn’t mean you’re off the hook. If the ICA is forced to pay for your employee’s injuries, they’ll seek reimbursement for all of those costs—from you. You’ll need to pay them for any benefits paid out plus a penalty of 10% or $1,000, whichever is greater. And you’ll also pay interest on the total.
That gets expensive quickly. (Really, get workers’ comp right now while you’re thinking about it.)
You could face fines of up to $10,000.
There is a flat $1,000 penalty for not having workers’ comp insurance. If you still don’t get the required coverage, the second instance of being uninsured within a five-year period will get you a penalty of $5,000. Still not convinced? Instance #3 will cost you $10,000.
Your business could get shut down.
Finally, if you don’t get workers’ compensation insurance for your business, the ICA could file an injunction that would shut your business down. Basically, you’d be required to stop operating until you acquired workers’ comp insurance. And, when you do...
Your workers’ comp bill will be higher.
Sooner or later, you’ll need to purchase workers’ comp. When you do, potential insurers will discover your gap in coverage and either quote you a higher rate or refuse to insure you altogether (which means you may end up at an expensive state fund).
Going without workers’ comp coverage is not worth the risk.
Choosing to ignore the law might be tempting—especially if funds are tight. But going without workers’ comp is not a good way to save money. It will expose you and your business to legal risk and will almost certainly cost you more money in the long run. Also, workers’ comp coverage protects the people who make your business possible, so buying and maintaining a policy is just the right thing to do.