Arizona Workers Compensation

The sole proprietor maintains the option to purchase coverage for himself/herself, however if there are no employees is not required. If there are any employees, then the sole proprietor must maintain workers compensation coverage for them. If the business operates as a corporation, you are not considered a sole proprietor unless the corporation is not considered in good standing by the Arizona Corporation Commission. A corporation is considered an employer and must obtain workers compensation coverage for its employees including shareholders who contribute to the function of the business.

Workers compensation insurance is for a required for a domestic servant, independent contractor, or staff whose employment is not in the customary business of the employer. However, any other workers hired for routine business require workers compensation insurance including full-time, part-time, minors, family members, or aliens.

If a Limited Liability Company (LLC) or Limited Liability Partnership (LLP) has active employees that are not members, then workers compensation insurance must be obtained. Tax file election determines whether coverage is required for its employees who are members. Companies filing IRS Form 8832 taxed as a corporation, are considered a corporation must therefore hold workers compensation coverage on its member employees. If the business has not designated to be taxed as a corporation, the business will be treated as a partnership for its member employees, and will not be required to carry workers compensation. The same applies to a one member LLC as a sole proprietorship.

It is important to note that although workers compensation coverage is not required for independent contractors, disputes over an employee’s true status as an independent contractor can often occur. Courts consider these instances on an individual basis. Factors include: the length of the employment, process of compensation, the right to hire and fire, the extent of an employer’s control, and time of day of work occurs. Therefore regardless of your arrangement the court still hold the authority to deem a worker an employee and therefore will require workers compensation benefits.

If an employee is injured while working for a company that is not carrying workers compensation insurance, the employee has can file a workers compensation claim with the Industrial Commission of Arizona (ICA) or they may file a civil suit against you. Proof of the injury is required in civil lawsuit as evidence. If an employee elects to file a claim, it will then be sent to the Special Fund Division/No Insurance Section of the ICA. If the claim is approved, The Special Fund will process the claim and pay medical/compensation benefits. Reimbursement will be sought by The Special Fund from the uninsured employer for any benefits paid to the injured worker plus a penalty of 10% of the benefits rewarded or $1,000, whichever is larger as well as interest on the total.

An employer who has failed to provide coverage may be charged, regardless of if an employee chooses to file a workers compensation claim, a civil penalty of $1,000. A second offense within five years increases the penalty to $5,000 and $10,000 for a third instance in that same period. An employer that fails to obtain the proper coverage insurance may also be subject to an injunction by the ICA that can force the employer to cease business until the employer complies with the necessary workers compensation coverage for its employees. The offense of failure to carry workers compensation insurance is considered a Class 6 felony. A.R.S. § 23-932.