Despite the best efforts to create a safe workplace, accidents still happen. And that’s why workers’ compensation insurance, also known as workman’s comp, is one of the most important types of small business coverage. Most states require businesses with three or more employees to carry this coverage. But what exactly does it cover?
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Benefits
The benefits of workers’ comp include medical care for work-related injuries or illnesses, partial wage replacement, and, in some cases, death benefits. Employers are required to buy this insurance for their employees in most states. It also protects employers from lawsuits that could result from workplace injuries and illness. Small business owners who don’t carry workers’ compensation risk significant out-of-pocket costs. Whether an employee suffers from repetitive-motion injuries such as carpal tunnel or a severe injury like a fall from a ladder, this insurance helps them recover. Without it, a single claim could devastate a small business and force it to close. In addition, a suitable workers compensation insurance policy can help keep employees productive by limiting downtime due to injury or illness. This translates to happier and more effective company employees, increasing revenue and profitability. Workers’ comp is necessary for many businesses and is required in most states when an employer hires their first employee. Fortunately, it’s a manageable coverage to obtain. Insurers typically quote policies based on state-specific guidelines, payroll, industry, and claims history. Many small businesses, however, can qualify for a lower rate by applying to an assigned-risk plan or pool. These plans provide coverage for high-risk companies needing help finding insurance in the private market or businesses with a history of high claims.
Coverage Requirements
In most states, employers must carry workers’ compensation insurance. Failing to meet this requirement can result in substantial fines and expose the business to heavy lawsuits. The requirements vary by state, but a small business owner’s policy covers medical care for workplace injuries or illnesses, lost wages, and disability benefits. Small businesses must typically have at least five regular employees to require workers’ comp coverage. However, sole proprietors, partners, corporate officers (even if they’re not listed on the payroll), and family members are excluded from compulsory coverage. However, they can choose to be covered as well. Domestic or casual laborers, independent contractors, agricultural workers, textile hall corporations, and federally-covered employees may also be exempt. Depending on the nature of your business, a workers’ comp policy can protect you from costly misclassification fines by ensuring that all workers are eligible for benefits if they’re injured or sick at work. It’s worth the extra expense to transfer some of the financial risks from you to an insurer, so you can focus on your day-to-day operations without worrying about potential accidents or claims.
Costs
Medical bills and lost wages can increase quickly if an employee is injured. Workers’ compensation insurance helps offset these costs, so employees don’t end up with crippling debt from medical expenses or a loss of income. Workers’ comp premiums are typically based on payroll and worker classification codes like other business insurance policies. In addition, some states use an experience rating factor that factors in your business’s previous workers’ comp claims history and compares it to other businesses with similar experience. Generally, companies with better safety records have lower experience ratings and pay less for their workers’ comp insurance. It’s important to note that workers’ comp only covers injuries and illnesses that occur while an employee is on the job. Even if your business doesn’t require workers’ compensation insurance, carrying the policy’s still a good idea. In addition to helping employees recover from work-related injuries, workers’ compensation insurance protects your business from financial hardship if an employee is injured or sick while working for you. Other small business insurance policies may also provide valuable protection, such as general liability, commercial property, and professional liability. A licensed insurance broker can help determine if your business requires workers’ compensation insurance and guide you through your options.
Insurance Options
There’s no arguing that workers’ compensation insurance is a must-have for small businesses. It protects your business from costly lawsuits and allows employees to get medical treatment without fear of losing income. Plus, it’s required in almost every state. But you should consider additional coverages to protect your business against other claims. General liability insurance might help with injuries to people who aren’t your employees and damage to property that doesn’t belong to you. Commercial auto insurance might cover the vehicles your employees use for work. Professional liability insurance might provide financial protection if an employee makes a mistake at work that results in a financial loss. If you are a sole proprietor, you won’t be required to have a workers’ compensation policy, but you may choose to purchase it anyway. If you are sued for a work-related injury or illness, your policy’s workers’ comp portion can pay your legal fees and court costs. You can also add a personal umbrella insurance policy to help protect your assets from a claim related to a work-related accident or illness.
