New York State: Unfriendly to small businesses

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[ 2013-January-27 14:31 ]

Recently I saw an ad in the Economist encouraging businesses to come to New York state (New York state open for business). Having recently started a small business in New York, I would like to voice my opinion that the state could do better in reducing administrative barriers. In particular, we got burned by the state Worker's Compensation Board (WCB). In New York, most businesses need worker's compensation insurance for all employees. Since we've never done this before, we were unaware of this rule until we received a letter from the WCB informing us we would be fined $250/week per employee if we didn't provide proof of coverage. I've talked to other startup founders who were similarly caught unawares. I promptly purchased insurance for the three of us (about $500/year total), then returned the proof of coverage. About four weeks later we received another letter, informing us that we owed a $4000 fine because we didn't have coverage for six weeks. We would owe further penalties if we did not pay within 14 days. Worse, we had recently moved offices, so when I got the letter we had 2 days until the deadline.

After reviewing the rules, I couldn't argue with the facts: according to the law, we didn't have worker's compensation insurance for 6 weeks for 3 employees, so the fine is $4000. However, this seems horribly unjust: we made an honest mistake, and corrected it as immediately once we were informed of our error. I decided that we had a reasonable basis to file an appeal, so I wrote a letter explaining the circumstances. Because I didn't want to get assessed late penalties, I also included payment for the fine, assuming that the difference would be refunded once the appeal was resolved. That was my mistake. It turns out that if you pay the fine, the WCB considers that an admission of guilt, despite the fact that the envelope containing the payment also included an appeal! According to the agent I spoke to on the phone, there is literally no way to get this issue re-opened, beyond filing a lawsuit. As a result, we are out $4000 because I tried to do the right thing, and because I misunderstood the directions and erred on the side of caution. There is nothing I hate more than getting penalized for trying to be honest. All it would have taken to prevent this is to have a WCB employee with half a brain open the envelope, notice that I included both a payment and an appeal, and just shred my check and process the appeal instead.

My favorite part is that three weeks later we received a letter from a different department of the worker's compensation board. It turns out we also need disability insurance, and they wanted proof of that as well. Why couldn't they have sent one letter asking for both of these at the same time? Thankfully so far we have not received a fine for that one.

Others should learn from my mistakes: review the rules and get worker's compensation and disability insurance for your employees. If you do get a fine, don't pay it. Instead, you should file an appeal, and only pay after the appeal has been resolved. In the worst case, it will delay you needing to pay the fine.

Another ridiculous thing New York state does: As part of the wage theft prevention act, employers must get their employees to sign a statement about how much they are getting paid once a year. Employers must keep a copy of this form for six years, but don't need to file it with any state agency. I understand there there are good intentions behind the rule, but I would argue that the paperwork burden imposed by this legislation on all companies operating in New York State outweighs any benefits. Particularly since I don't see how this prevents wage theft anyway.