When you say workers compensation, the first thought many people have is of a severely injured worker hiring an attorney to sue their employer. In reality, worker’s compensation insurance exists to protect employers from direct lawsuits while protecting workers’ from the costs of unexpected, on-the-job injuries. Here’s what small businesses need to know about workers compensation.
When You Need to Have Worker’s Compensation Insurance
A sole proprietor doesn’t need worker’s compensation insurance until they hire their first employee, though the rules are fuzzier when you have contractors. Not all states require a business to have a worker’s comp policy in place if the only people working there are 1099 contract workers.
Yet a contractor may have to have worker’s compensation. For example, the contractor may require independent contractors as well as subcontractors to have worker’s compensation. Note that this is separate from the demand that contractors be licensed and bonded. That type of professional insurance will pay for the damages the contractor does to the client’s home or business, not pay out if the contractor is hurt on the job.
The Universality of Worker’s Compensation Insurance
Every state requires small businesses to have worker’s compensation in place if they have employees, though the mandatory minimum coverage level can differ because of worker’s compensation classification. The fines they can impose for the failure to carry property WC coverage also varies.
Another common misconception is that worker’s compensation is only required for companies in the building trades or are physically demanding. In reality, worker’s compensation is required for all employers. It doesn’t matter if everyone in the business is working on the computer.
The Coverage Provided by Worker’s Compensation Insurance
Worker’s compensation doesn’t just cover injuries on the job, such as when someone is hit by a falling tool on a construction site. It will cover their medical bills if they’re made sick by their job. This could include Legionnaire’s disease from poorly maintained HVAC system to cancer caused by prolonged chemical exposure. Worker’s compensation will pay their lost wages, while they are at home recovering. It often covers the difference between someone working in a less demanding position and their full salary. This incentivizes the company and the person to return to work in some role while minimizing the cost to the insurer. If the person dies, workers’ compensation can pay death benefits to their family.
The Ways to Save on Worker’s Compensation Insurance Premiums
Workers compensation insurance is an insurance policy. The premiums you pay are based on the risks the insurer takes. One factor is the industry you’re in. The construction industry must pay higher premiums, since even an engineer or inspector could fall from a great height or be hit by something dropped by someone working on the roof. Another factor insurers take into account is the claims filed by the company’s employees. If your company sees a disproportionately high claims rate, insurers will charge you more. On the other hand, they might give you a discount if they can do an audit of your business processes and recommend changes to reduce the risk of future injuries.
Another way to keep worker’s compensation insurance costs in line is to fight claims. There are people who exaggerate injuries in order to stay at home with pay longer. There are some who claim disability so that they will never have to work again. On the other hand, many companies fight every worker’s comp claim out of concerns of fraud and abuse. This is why a surprisingly large number of legitimate claimants are hiring a lawyer, though they were actually injured on the job.
Some companies reduce their worker’s compensation costs by self-insuring. This isn’t an option in every state. It is only an option for large firms, given the cost.
The Odds You Will Face a Worker’s Compensation Claim at Some Point
One study found that half of all small businesses will face a worker’s compensation claim in the next ten years. The more employees you have, the more likely it is you’ll face a worker’s compensation claim in a given year.