If you own or are planning to own a small business, you’ve probably researched different small business insurance types. One of the most important types of insurance you should consider is workers’ compensation insurance (also called workers’ comp or workman’s compensation). You might ask, “Is it really so important? Do I actually need workers’ comp insurance?”
Do you only have a few employees? Do they work in low-risk jobs? A lot of small business owners believe they don’t need to carry workers’ compensation insurance if the answer is yes to either of these questions. That’s typically not the case, though.
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After all, it’s your job and responsibility to keep your employees safe at work. You can (and should!) adopt any number of safety measures to mitigate the risks your workers may face on the job. Still, you can’t remove risk altogether.
Workers’ compensation insurance helps protect your business and helps cover your employees in case an employee gets injured or becomes ill on the job. Workers’ comp can provide considerable financial relief for the affected worker at such times.
In this article, we’ll explore what workers’ comp insurance is and why it’s so important for a small business to carry.
Workers’ compensation insurance is an insurance program that offers benefits to employees who suffer job-related injuries or illnesses. Available in the US since 1949, it provides wage replacement and medical benefits to workers. It’s an important way that employers can help protect the people who work for them.
The workers’ comp insurance program is “no-fault,” meaning that it kicks in whether or not the injury is the fault of an employee, the employer, co-workers, or even customers.
Businesses are required to pay the premium of the insurance, and in exchange for the cost incurred, employees are limited in their ability to sue their employer for negligence. After all, while it’s your job as a business owner to create a safe working environment for your employees, accidents do happen. So, while workers’ comp helps protect employees in case of injuries, it can also protect employers from costly lawsuits.
As workers’ compensation is a state-regulated program, the laws in each state determine the coverage. So, the kinds of injuries and ailments covered, the evaluation of these issues, how medical care is to be delivered, and the amount and kinds of benefits the injured or ill employee may receive—are all dictated by the state.
Usually, workers’ compensation covers medical costs and lost wages for work-related injuries and illnesses. For example, a delivery driver injured in an accident while delivering your product would likely qualify for workers’ comp aid.
Workers’ comp also covers illnesses “related to employment,” as defined by the state. The rules for this vary depending on the state and type of industry of your business. A good example is lung disease. If an employee’s lung disease is scientifically linked to exposure to chemicals used in your business, it could be covered by your workers’ comp insurance.
Oftentimes, workers’ comp pays costs in addition to medical bills, too. Specific coverage varies by state and insurance policies, but generally, the following additional items are covered:
To put it simply: probably. In most states, workers’ comp is mandatory. The laws require you hold these policies in order to eliminate the need for litigation. Employees who become ill or get injured on the job will be compensated for their medical expenses and time off due to their injuries. In return for the coverage, they forfeit the right to file lawsuits against your business.
In most US states, it’s mandatory for business owners to have a workers’ compensation insurance policy. However, even where it’s not required by law, there are several reasons why you may still want to buy workers’ comp for your business:
Every state has laws and penalties related to workers’ compensation insurance. In most states, it’s required as soon as you hire your first employee. Some states, on the other hand, don’t mandate coverage until you have two, three, four or more employees.
For example, in Alabama, you aren’t legally required to have workers’ comp if you have less than five employees. In Texas, business owners are not legally required to buy workers’ comp at all, even though it’s mandatory in every other state. Penalties for not carrying workers’ compensation insurance—when it is required—can range from fines to varying amounts of jail time, or both.
If you want specifics about your state’s workers’ compensation requirements, it’s best to go directly to the source: your state workers’ compensation board. To do that, simply follow your state’s link from the table below:
If you’re a self-employed professional, you might have thought to yourself, “Do I need workers’ comp insurance if I have no employees?”
If you have no employees, you’re typically not mandated by state law to buy workers’ compensation insurance. That said, it’s still wise to have the coverage—even if only for yourself. Although avoiding workers’ compensation premiums might save you money in the short term, it can cost you heavily if you end up with a work-related injury or illness—and find yourself out of work because of it. Additionally, sometimes a contract or agreement with another business may require you to purchase workers’ comp for yourself.
In any case, if your job is prone to risks or accidents, you’d be better off getting workers’ comp coverage—even if you don’t have employees.
If you have employees, depending on how many employees you have and which state you operate in, your business is probably mandated by law to carry workers’ comp. However, even if your state doesn’t mandate coverage, it’s usually in your best interest to invest in a workers’ comp policy because it’s likely to save you money in the long run.
Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation or check your current rate in 3 minutes.
