As a small business owner, you might be worried about the cost of providing workers comp insurance, considering that in 2015-2016, the average cost for all claims was $39,424. That adds up fast.
This is a concern, but workers compensation insurance for small business is still important and, in many cases, required by law. Here’s what you need to know when deciding on an insurance policy for your company.
Workers Comp Defined
Workers compensation insurance, or what used to be called workman’s comp insurance, is designed to cover situations when your employees experience job-related illnesses or injuries.
This coverage applies regardless of who caused the accident or illness. It could be the employee, you as the employer, another employee, or even a customer.
In exchange for the coverage, employees waive most or all of their rights to sue their employer for damages related to the injury or illness.
Workers comp typically includes the following benefits:
- Medical treatment for the worker
- Disability insurance while the employee recovers
- Permanent disability if the employee is unable to go back to work
- Death benefits if the worker dies due to the job-related illness or injury
Why Provide Workers Comp?
In managing production worker compensation and expenditures, you might wonder if you really need to provide workers comp.
The first thing to find out is if this type of insurance is required in your state, and for your particular business situation.
In some cases, coverage is required based on the number of employees you have. If you’re a sole proprietor or have only a few employees, you might be exempt from small business workers comp.
It’s also important to look at the status of contractors. In many cases, contractors are classified as employees for purposes of workers comp, which is different than some other legal situations. Contractors may have their own worker’s comp insurance, but you should always confirm that before assuming you don’t have to cover them.
Even if you’re not legally required to provide workers comp, though, it’s worth considering. Without it, you’re at risk of employees suing you for damages, and that often costs far more than the insurance itself.
Providing this benefit is also good for your employees. They’ll feel more secure knowing they’ll be covered in case of accidents, and they’ll be more committed workers because of it.
What Does Workers Comp Cover?
Workers comp covers injuries or illnesses sustained while on the job. This includes times when business workers are traveling for work purposes and are in a car accident, as well as situations when employees are in the office or at a client site.
Workers comp also applies to situations that occur while the employee is working. This might be a natural disaster or an attack from other workers or terrorists.
In some cases, an employee might have a pre-existing condition that grew worse as a result of a workplace injury. This is a gray area for insurance, and benefits might be limited because of the pre-existing condition.
Workers comp doesn’t cover all situations, though. It doesn’t apply when the illness or injury:
- Was caused intentionally by the employee
- Occurred as a result of illegal activities
- Happened when the employee was drunk or on drugs
- Was sustained while the employee was in violation of company policy
- Occurred when the employee wasn’t working
If you need more information on workers compensation coverage or help with a specific claim, you should consult a legal expert.
Workers Comp Differs by State
What makes workers comp more challenging is that requirements depend on what state you’re in.
Each state decides for itself if workers comp is required, as well as all the rules around the number of benefits paid, which injuries are covered, and how the employee will receive medical care.
States can also decide if workers comp is provided by private insurance or state-run agencies, as well as how claims are handled. You should review your state’s requirements before making any decisions about coverage.
If your company grows enough to expand to multiple states, make sure you consider the new regulations in those states and how they impact your coverage.
Where to Get Workers Comp Insurance
Workers compensation insurance isn’t covered by your general small business insurance, so you’ll need to purchase it separately.
If you’re getting private insurance, instead of being covered by a state-run agency, look for a policy that’s specific to your industry. Construction workers have very different risks than office workers, and you want to make sure your coverage aligns with your business.
How Much Does It Cost?
Cost is one of the biggest questions about workers comp, but no one amount applies to all companies.
The number of employees is one consideration, but a bigger factor is the type of business you have. Jobs that have more inherent risk, such as involving lots of driving or doing construction, will have higher premiums than clerical work.
In addition to the type of job, location is a factor. This changed after 9/11 when insurers started paying more attention to the possibility of disasters in a particular location, whether those were natural or man-made.
If you’re worried about the cost, you can explore ways of making it more affordable. Offering safety programs and having a drug-free workplace could get you a discount. You could also consider having higher deductibles, which will lower the cost of your premium.
You should look at several employers’ compensation insurance companies, to make sure you’re getting the best policy.
Deciding on Workers Compensation Insurance for Small Business
Getting workers compensation insurance for a small business is important for legal reasons, and it will also benefit your employees. Finding the right policy requires some research and legwork, but once you have it, you can feel confident knowing both you and your workers are covered.
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