What Every Small Business Needs to Know About Workers’ Compensation

Feb 11, 2020 | Business Insurance

Keeping employees healthy and safe is a top priority for small businesses.

Employee safety

But accidents happen from time to time, and you don’t want to get embroiled in an expensive lawsuit over a workplace injury. For this reason, most states require employers to enroll in a system of workers compensation.

workers comp insurance for small businesses is beneficial for both employers and employees. It helps employers deal with injury-related workplace disruptions in an organized way. It also helps employees get back on their feet after suffering through an accident at work.

workers compensation insurance sounds simple in theory, but there is a lot you need to know to implement it successfully. Laws differ from state to state, and every small business is unique in terms of the way they organize it.

So to help you better understand what workers compensation insurance is, what are its benefits, and how to apply for it, read our short primer on the topic below.

What Is Workers Compensation?

workers compensation (or workers comp) is an insurance that provides medical help and wage replacement to employees.

This is also a publicly sponsored system which provides monetary benefits for workers who, while working for their companies, become injured or disabled. Worker’s compensation insurance is a kind of insurance that offers employees compensation for injuries or disabilities caused by their employment.

The beneficiaries of workers compensation insurance give up their right to sue employers for work-related injuries. In return, they receive guaranteed coverage when they suffer from workplace hazards. Employees also receive compensation for lost wages because of the time spent away from work.

Otto von Bismarck pioneered the system of workers compensation in 1881 in Germany. It served as a model for modern systems of workers compensation. By 1949, all US states had a workers compensation system in place.

Some key points to remember about worker’s compensation insurance:

  • Worker’s compensation insurance is a kind of insurance that compensates workers who are injured or become disabled as caused by their job.
  • Your employee waives the right to sue their employer when they accept worker’s compensation benefits.
  • Most compensation plans offer insurance coverage of medical fees covering injuries sustained related to your work.
  • Worker’s compensation is not the same as unemployment benefits or disability insurance. They are different.

Understanding more about worker’s compensation insurance

When a certain employee agrees to receive worker’s compensation insurance, this employee also agrees to give up their right to sue their employer for negligence. This is called a “compensation bargain” which should safeguard both the workers and employers. Workers usually give up further discussion in exchange for guaranteed compensation for their injury or illness caused by their work while their employers consent to a certain amount of responsibility while avoiding possible larger damage of a negligence lawsuit. All parties including taxpayers have advantages from avoiding legal fees needed to pursue a trial.

Most insurance plans offer coverage of medical fees that are related to injuries caused by work. One example is when a construction worker could claim compensation if scaffolding fell on their head but not if they were in a traffic accident while they’re traveling to the job site. In some situations, workers can get compensation for sick pay while they are on medical leave. In case you die as a result of an injury during work, this kind of compensation will also pay your family members or other dependents.

Special considerations about worker’s compensation insurance

We know that the “compensation bargain” excludes the possibility of claiming negligence by employees. Even though this is the case, this is not to conclude the compensation will not happen. Please note that it is not always clear whether or not an employer is responsible for an injury to their worker. What’s more, injuries sustained during work are underreported in some industries.

According to our law and legally speaking, there is no penalty for reporting an injury caused during work to your employer. However, this is impossible to regulate for certain individuals especially in industries like construction where an employee’s livelihood depends on how they can endure their physical abilities and the difficult job.

Something that you should be careful of is also wary of the insurance companies you choose since worker’s compensation payments can lead to insurance fraud. In some instances, workers will sustain an unrelated injury but they will report it that the injury was caused by their job. You should also not confuse this worker’s compensation insurance with disability insurance or unemployment income. Worker’s compensation insurance only pays workers who are injured while working. Meanwhile, disability insurance pays you regardless of when or where you are injured or disabled. Worker’s compensation insurance also does not cover unemployment. However, unlike unemployment income or disability benefits, worker’s compensation is always tax-free for those who have it.

Types of workers compensation insurance

In our country, worker’s compensation insurance is usually handled by the individual states. We also have the Office of Worker’s Compensation Programs. However, this is only meant for compensation policies for federal employees, longshoremen, and coal miners. The absence of federal standards for worker’s compensation insurance has led to different policies for the same kind of injuries in all different states of the country. It is important for a worker acknowledging and even preparing for the possibility of obtaining a work-related injury to carefully check both state and company compensation literature.

As recent studies have found out, worker’s compensation benefits have decreased largely in the majority of states. The same kind of injuries can receive different kinds of compensation depending on where the injured worker resides which pinpoints that it is really important to examine local compensation statutes. Meanwhile, other studies have shown that an ineffective worker’s compensation is directly related to income inequality.

Does your small business need workers compensation insurance?

Yes, for almost all businesses in the United States, this is required. Worker’s compensation insurance normally isn’t optional. Worker’s compensation laws differ in every state. However, small businesses usually need a policy already as soon as they employ their first-ever employee. Even though in some instances this is not required by law, this policy provides significant protection against medical expenses and employee lawsuits related to injuries that may happen in your workplaces. You can always rely on worker’s compensation insurance if one of your employees needs medical attention or rest due to a workplace injury or if an employee sues you for failing in preventing an injury during work. If you don’t carry this kind of insurance, your business will, of course, be responsible for all the medical and legal fees. Furthermore, all states will impose expensive fees for noncompliance.

Is workers Compensation Insurance Mandatory?

Most states legally oblige employers to purchase workers compensation insurance for their employees.

One of the rare exceptions to the rule is the state of Texas, which allows employers to opt-out of workers compensation insurance.

The legislation also differs depending on the size of your business. Large organizations can self-insure, i.e. pay claims directly to employees in case of injury. Small businesses must apply for workers compensation insurance from an insurance provider.

Failing to implement a workers compensation policy is a serious crime, and as an employer, you’re at risk of suffering fines and punishment, including imprisonment.

Who Provides workers Compensation Insurance?

Small businesses can purchase workers compensation insurance from private insurance companies, or some state-level institutions.

Private insurance companies reserve the right to set the insurance premium based on industry, claim history, and other factors. workers compensation insurance is usually purchased separately from other forms of insurance.

The premium you pay for insurance depends on the occupational hazards your employees are likely to encounter. Workers in industries such as construction or mining often require you to pay a higher premium.

What Does Workers Compensation for Small Business Insurance Cover?

Workers Compensation Insurance covers a variety of workplace injuries and conditions. 

Workplace accidents that lead to physical injuries are the most common case. The employee will have their medical expenses covered. They might also get a part of their wages back while recovering.

Occupational illnesses are another common situation where employees are eligible for insurance. These include things like carpal tunnel syndrome, which is prevalent among office workers.

Sometimes, injuries can lead to permanent disability. Besides covering medical bills, the worker is eligible to receive a part of their wage for a time even if they are unable to work anymore.

If an employee dies of an injury sustained at work, their significant others are eligible to receive compensation in their stead.

Common instances covered by this insurance include: 

  • Trips and falls
  • Equipment or machinery
  • Overexertion, sprains, and strains
  • Repetitive motion injuries (i.e. carpal tunnel syndrome or back pain)
  • Sick building syndrome
  • Mold exposure
  • Mesothelioma
  • Asbestosis

For you to be eligible for worker’s compensation insurance coverage, the illness or injury you have sustained should have a direct link to your job. The same injury or illness might not have the same coverage since the incident or situation matters. For instance, someone who is working in a very high-stress job such as a first responder might suffer a heart attack due to his job. In such a case, your insurance company might cover the medical expenses. However, if your employee already has a pre-existing cardiovascular disease who suffers from a heart attack at work not related to their work stress would not have his medical treatment covered.

Employees who were injured or sick on the job are, of course, entitled to medical payment and income loss. They might be eligible too for temporary and permanent disability benefits through worker’s compensation insurance. In case the employee dies, their beneficiaries can also receive the benefits from this insurance.

What Does Workers Comp Not Cover?

There are several instances where employees are not eligible for workers compensation.

One example would be injuries outside of work. If an employee suffers an injury during their commute, they are typically not eligible for workers compensation.

Another example would be injuries that result from violations of company policy. If an employee intentionally uses equipment improperly, they might lose their workers compensation.

Also, injuries that occur because of an employee being intoxicated or using illegal drugs will most likely not be covered as well. Other examples of injuries that will not be covered are injuries caused when an employee’s conduct breached the company policy. The rules differ widely in every state and rules can change over time.

Who Benefits From Workers Comp?

Both small businesses and their employees stand to benefit from workers compensation insurance.

For small businesses, workers compensation insurance offers a way to evade costly litigation processes. Employers can settle their disputes with employees informally by administrative law judges.

For employees, workers compensation provides another layer of safety at the workplace. Workers that have guaranteed insurance in case of an injury will trust their employer more. 

Third-party contractors are typically not covered by workers compensation. However, sometimes, the state may rule that employers have to ensure contractors have some other form of insurance coverage.

Executives and other C-suit individuals don’t fall under workers compensation, but they can opt-in if they choose.

Undocumented immigrant workers can sometimes be eligible for workers compensation insurance. States like Arizona, California, and Hawaii explicitly allow undocumented workers to benefit from workers compensation.

What are the Benefits of Worker’s Compensation Insurance?

Mandatory worker’s compensation insurance helps both you and your employees. For employees who are injured or who are sick due to work-related instances, this kind of insurance can cover your medical bills, a part of your lost wages, and also funeral costs if a work-related event results in your death.

Worker’s compensation can also benefit, of course, your business too. Accidents are inevitable and can help give your business a safety net. Aside from covering medical bills and lost wages, this insurance can also offer vocational rehabilitation services so it can help your employee to get back to work. It can also help you with legal costs in case someone files for a lawsuit against your business.

How Much Does workers Compensation Insurance Cost

The price of a workers compensation insurance policy can differ based on your industry, company structure, and location.

Small businesses typically pay around $3000 annually. You can expect to pay more the higher your payroll is.

Another thing to consider is costs relating to deductibles, the costs of handling claims, and the costs of reporting to the insurance provider.

Small businesses looking for affordable solutions should look into pay-as-you-go schemes, as these are more cost-effective than policies where you have to pay up-front.

Some insurance providers offer discount rates for businesses that implement workplace safety best-practices.

Can I get less expensive workers compensation insurance?

It is still possible to cut costs for worker’s compensation insurance even though this is more heavily regulated in most states than other insurance policies. Ask help from your state for potential credits to help cut the costs. For instance, some states offer credits in workplaces that are drug and alcohol-free or credit for having a small deductible. Your risk plan might also help you determine the cost of your policy so it could be beneficial to ensure you have the right designation. Some professional and trade organizations can also offer sponsored programs to help costs. You could also ask help from your insurance company to cut the costs of your policy without damaging your ability to still be compliant with the laws and regulations of your state.

You must buy a worker’s compensation insurance policy for your business if you have any employees that are not owners. This kind of insurance is never included in any package for business so you will have to purchase a separate policy for this. Make sure to discuss the options with us to find the right coverage for your business so that you and your employees are protected in case something happens.

Do I still need workers compensation insurance if I use contractors instead of employees?

Employees who are exempt from worker’s compensation requirements are contracted workers, leased workers, and some other hiring circumstances. However, as we have stated, laws vary from every state and some require companies to provide coverage for other contractors.

Does workers compensation protect against employee lawsuits?

Yes, in most states. Most worker’s compensation insurance policies have employer’s liability insurance to protect your company in case an injured worker files a lawsuit against you for not preventing an accident from happening in your workplace.

If one of your employees sues you for negligence, the insurance company you got will pay for the following:

  • Attorney’s fees
  • Court costs
  • Settlements or judgments

Please take note that business owners in North Dakota, Ohio, Washington, and Wyoming do not have employer’s liability insurance included in worker’s compensation insurance.

In the following states above, worker’s compensation insurance is bought from monopolistic state funds which do not offer this kind of coverage. Insurance companies instead sell stop gap coverage to protect you from possible employee lawsuits.

Does workers compensation cover employees who contract COVID-19 or coronavirus?

This normally depends on where an employee contracted COVID-19.

Worker’s compensation insurance safeguards employees from injuries and illnesses contracted during their job. If one of your employees contracts the coronavirus while they were working, then this policy should provide them coverage.

One example is when a nurse is caring for sick patients or a grocery store worker who interacts directly with the public would both have stronger claims than an office worker who just works inside the office the whole day. However, please note that the worker’s compensation insurance doesn’t cover diseases not related to their current employment.

Your own state’s laws could help cover costs related to COVID-19. If you think that you are eligible for a claim, please contact your insurance company immediately.

Where is workers compensation insurance required by law?

Each state in the country has its own unique set of laws and penalties for worker’s compensation insurance. In most states, worker’s compensation insurance is required as soon as a business hires their first employee.

Meanwhile, other states don’t require such coverage until a business has two, three, four, or more employees. However, Texas is the only state where business owners are never required to purchase worker’s compensation insurance. While all other states impose penalties for not having worker’s compensation insurance. These penalties can range from fines to jail time or even both.

Do self-employed business owners need workers compensation insurance?

This is not required by our law. However, states generally require businesses with employees to acquire worker’s compensation insurance.

But for sole proprietors, independent contractors and other self-business owners may purchase this policy to fulfill the terms of a contract or to safeguard their income.

Be sure to note that most health insurance policies exclude coverage for work-related injuries and illnesses. If you have a worker’s compensation insurance as an independent contractor, your medical bills will be covered when you’re injured while you’re in the workplace.

Worker’s compensation insurance can also partially cover wages lost while you are taking time off to get some rest and recover from an injury caused by work.

Why do certain clients require you to carry workers compensation insurance?

Of course, your clients don’t want to deal with problems along the way happening inside the workplace including the expenses and the hassle of having an injury caused by work. This is why they might require you to carry your business insurance including worker’s compensation insurance.

This requirement would avoid legal liability for the client. Independent contractors with business insurance are likely to ask for payment from the insurance companies instead of the client if they are injured while working for you.

Workers Compensation Insurance for a Safer Workplace

Small businesses face many challenges because of their size.

They often can’t afford to provide perks such as extensive retirement plans or comprehensive health insurance. But thanks to workers compensation, they can still offer their employees worthwhile benefits.

workers compensation insurance for small businesses is essential for generating workplace satisfaction. Apply for a workers compensation policy today and give your employees a reason to stick around for the long haul.

Ask us any questions

Contact us in case you need a quality protection package. Stay on the safe side! Don’t also forget to ask us any questions if you need clarification about some things that are not clear to you. Our contact information is also found on this website.