Starting tomorrow, employers who cheat the New York workers' compensation system will face felony charges under tougher provisions in the state's recently revised comp law.

The change was supported by an insurance agent group, which recently sent out an alert to its members concerning the upgraded penalties that were part of a comprehensive reform bill signed into law by Gov. Eliot Spitzer on March 13.

David Dickson, president of the Glenmont, N.Y.-based Professional Insurance Agents of New York State, noted that the new law "treats employers who cheat on premiums as severely as those who don't get coverage at all."

"Employers who intentionally and materially understate or conceal payroll, or who materially misrepresent or conceal employees' duties to avoid proper classification, are deemed to have failed to secure compensation," he said.

For employers with more than five workers, misrepresentations and concealment violations constitute a class E felony carrying a fine of $5,000 to $50,000.

For smaller employers, the first violation remains a misdemeanor with fines of $1,000 to $5,000. All second offenses are felonies, regardless of employer size.

Owners who set up different companies to avoid second-offense jeopardy will run into the "substantially owned affiliated entity" test.

The law bars employers found guilty of a misdemeanor offense from public works projects for one year; with felony offenders barred for five years.

Under the new statute, employers without coverage, or who fail to pay penalties, are deemed an immediate serious danger to public health and safety, and the Workers' Compensation Board is authorized to issue immediate stop-work orders in such cases.

As of July 11, the Workers' Compensation Board is empowered to conduct on-site inspections to investigate and enforce employer compliance. Board inspectors may examine and copy business records, administer oaths and affirmations, and subpoena witnesses or records.

Starting Sept. 9, employers are newly required to keep records on the classification of employees and on employee accidents.

Already under the law, state agencies--including the departments of tax and finance, insurance, labor and motor vehicles--are empowered to coordinate efforts in gathering data helpful in identifying fraud.

"It's anticipated that employers who leave any type of footprint in the state by registering vehicles, paying taxes or securing unemployment insurance will be cross-checked with workers' compensation data. New technologies for issuing fraud-resistant certificates of insurance also are in the works," said Mr. Dickson.

He noted that PIANY had supported the reform legislation "to restore a level playing field for the state's employers. Not only have New York's reputable businesses been paying too much for coverage, they sometimes have been competing directly against scofflaws whose lower costs provide an unfair business advantage."

Mr. added that, "taken together, the compliance provisions of the recent workers' compensation reforms signal a determination by the state to protect workers, and also to restore fairness to the system."

He cited a Fiscal Policy Institute finding that employer noncompliance is a growing problem in New York. According to the Institute, as much as $1 billion in premium may be missing from the system each year.

"One reason the cost of workers' compensation in New York currently is so high is that a significant number of employers for years have not been 'playing by the rules,'" said Mr. Dickson. "For honest employers, the new law will mark the beginning of the end to this unreasonable subsidy."

Special Reports /

Business Cheating On N.Y. Comp Becomes A Felony

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