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For more than 10 years, the state Department of Consumer Protection stopped verifying that employers had workers’ compensation insurance when their licenses came up for renewal.
As a result, state auditors warn that the violation of state law increases the state’s financial liability, especially with new home construction workers, where the largest numbers of non-compliance appear to be taking place.
The Department of Consumer Protection licenses or registers 33 occupational and professional trades.
With the exception of liquor permits, the estimate of when the consumer protection agency stopped its practice of verifying workers’ compensation for its employees may go as far back as 1986, said Robert Jaekle, Auditor of Public Accounts.
The agency’s role is to provide another layer of governmental corroboration that employers are complying with state laws that require them to carry workers’ compensation insurance. This is similar to the mechanism established with the Department of Motor Vehicle that verifies motor vehicles are insured and municipal property taxes are paid.
Foreseeable Problems
“If you don’t require that evidence, it is more likely [an increased number of employers] will get a license without worker’s compensation,” Jaekle said. “What we are saying is logically, that without evidence of workers’ compensation coverage, someone won’t have it at a time when an employee is injured.”
The recently released auditors report cautions that the consumer protection department’s failure to require proof of workers’ compensation insurance when renewing licenses “increased the number of awards having to be paid out of the State’s Second Injury Fund.”
The good news is that a Second Injury Fund exists, Jaekle said. “But many times the companies that don’t have workers’ compensation don’t have assets for the state to recoup the payments [paid out to injured employees],” he said.
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Others Pay More
The effect on honest employers who are paying workers’ compensation insurance is that they are paying more than they should because others are not adhering to the requirement to maintain the insurance, he added.
The state does try to recover the costs from the employer whenever possible, he added.
Jerry Farrell Jr., commissioner of the Department of Consumer Protection, said the agency agrees with the audit findings and is working on a solution.
Farrell, who began heading the department on December 31 and was deputy commissioner since 2004, said he met with the auditors and state Workers’ Compensation Commission to establish a verification process that is feasible.
“It was not something on my radar screen as the deputy commissioner,” he said. “It came as news to me when I became the commissioner. I have tried to figure out how we need to solve it and I am very committed to solving the [problem].”
Several factors caused the department to partially discontinue its review requirement of license renewals, he added, particularly an increased volume of licenses since 1986. Staff reductions and the demand to issue renewals in a timely manner were other factors.
