Insurance Considerations When Hiring Undocumented Workers

With the evolving landscape of protections for undocumented workers, including areas of insurance, there have been significant changes. A number of states in the U.S. have taken steps to address this issue and have introduced legislation to offer protections to these workers.

While undocumented workers may face challenges in securing protection due to regulatory hurdles and legal complexities, it’s the employers who hire these undocumented workers that may take on significantly more risks.

Potential liability

In 1986, Congress enacted the Immigration Reform and Control Act (IRCA). The IRCA’s primary goal is not to penalize individuals working in the country illegally by denying them workers’ compensation coverage. Instead, it aims to stop the opportunity for their employment by penalizing the employers who knowingly hire them. This includes individuals who:

• Enter the country without a visa or valid entry document;
• Overstay a valid visa;
• Re-enter the country illegally after being removed from the U.S.;
• Violate travel restrictions while in the U.S. for a temporary visit;
• Use fraudulent immigration documents to enter the U.S.; or
• Impersonate a U.S. citizen in order to gain citizenship or residence.

Why employers should be aware

IRCA puts the bulk of the responsibility of verifying an employee’s legal ability to work in the United States on the employer. An employer making the decision to hire an undocumented worker should be aware of the heightened risk involved, both legally and financially.

Not only could the employer face fines, lose their business license and face criminal penalties, but they may also lose their business insurance coverage. This includes coverage such as workers’ compensation, business automobile and commercial general liability.

Safety risks:

Even if there are insurance protections in place, undocumented workers may be more vulnerable to workplace accidents and other claims. This can be due to lack of familiarity with labor regulations, safety protocols, traffic laws and building ordinances in their state or region.

Undocumented workers may not be insurable:

While immigration laws are exclusively federal, workers’ compensation laws are governed on the state level. All 50 states approach the issue of paying workers’ compensation benefits to undocumented workers in a different way.

Additionally, various insurance companies all have different policy forms and terms and conditions. Employers should consult their insurance broker and legal counsel for advice if they potentially consider hiring undocumented workers.

Knowing who to hire

It’s important for employers to establish a way to verify who they are potentially hiring to their workforce.

Some ways to do this are:

• Have new employees fill out an I-9 form required for legal employment
  • The I-9 form was revised, effective August 1, 2023; all employers must use the new form starting November 1, 2023.
• Contact the local Motor Vehicle Department for driver’s license or state ID number verification
• Create an account with the Social Security Administration to verify social security numbers

Ultimately, companies must have a comprehensive understanding when it comes to insurance considerations for undocumented workers. To avoid possible coverage issues, employers should consult with their insurance providers and seek legal advice to better understand their state’s work authorization status for undocumented workers. *

*This blog is not intended to serve as legal advice for individual fact-specific legal cases or as a legal basis for your employment practices.