As a small business owner, you deal with risk and uncertainty every day. And the stakes get even higher when you begin hiring employees.
According to the U.S. Bureau of Labor Statistics, roughly 2.7 out of every hundred full-time employees experienced a workplace injury or illness in 2022 (1).
Fortunately, workers’ compensation insurance can help protect your business and employees in the event of these workplace incidents.
It’s crucial to know if you need workers’ compensation insurance for your small business, and we can help you find the answer.
What is Workers’ Compensation Insurance?
It doesn’t matter what type of business you run — if you have employees, there’s always a chance that they can get injured or sick on the job. That’s where workers’ compensation comes in.
Workers’ compensation, also known as workers’ comp, is insurance that provides medical and wage benefits to employees who get injured or sick on the job.
As a small business owner, carrying workers’ compensation insurance can provide you with much-needed security, as this type of coverage may help prevent an employee from suing your business for a workplace injury.
Many business owners wonder if they need workers’ comp.
If you have employees, the answer is often yes.
Workers’ compensation is state-mandated, and according to FitSmallBusiness.com, nearly every state requires businesses with employees to carry workers’ compensation insurance (2). And some states even have severe penalties if you are noncompliant.
Be sure to check the workers’ comp laws in your state to learn the requirements for your business. If you operate in more than one state, you need to comply with the law in each of those states.
Do I need workers’ comp for myself if I don’t have employees?
A business owner with no employees is typically exempt from carrying workers’ comp insurance. Again, check your state laws to be sure. Even if you don’t have employees, you still may need to purchase workers’ compensation insurance for your business (more on that later).
Know your state’s requirements.
Whether or not you need workers’ comp may depend on where your business operates. For example, Florida workers’ compensation law is likely different from California workers’ comp laws.
Do a bit of homework to understand the workers’ compensation laws in your state. If your employees work in multiple states or you plan to expand your business into other states, make sure you take that into account when you get coverage.
Do you need workers’ comp for 1099 employees?
If your business uses independent contractors (sometimes referred to as 1099 employees), you may not have to carry workers’ compensation insurance. As with many workers’ comp requirements, the laws can differ from state to state.
TIP: It’s important to know how to distinguish an employee from an independent contractor. Check out this helpful guide to classifying workers correctly.
Workers’ Compensation Insurance is an Absolute Must for Small Business Owners
If your small business has employees, workers’ compensation is insurance coverage you probably don’t want to be without. Here’s why:
It may be required by law.
As mentioned previously, each state has its own laws regarding workers’ compensation. It’s up to you as a business owner to follow the law and purchase workers’ comp insurance when you hire your first employee. That includes any part-time or seasonal workers too.
It may cover legal fees.
Hopefully, you’ll never be faced with a lawsuit from a workers’ compensation claim. Fortunately, if you do, your workers’ comp policy may include coverage for legal defense.
It may be requested of you.
Certain projects may require that you carry workers’ compensation insurance. If you’re a contractor who has employees and you need to pull a permit, you may be asked for a certificate of insurance (COI) to prove that you have coverage.
No workplace is hazard-free. Even in the safest environments, your employees can experience work-related accidents or injuries. With workers’ compensation, your employees have a plan in place if they require medical costs and wage replacement benefits.
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How To Get Workers’ Comp For Your Business
Find an experienced insurance provider.
When it comes to finding the best policy for your business, partnering with a knowledgeable provider is invaluable. At Simply Business, we can help you get the coverage you need in just minutes online. We also have licensed insurance agents to help with questions at 855-930-2844.
Understand what workers’ compensation covers.
Workers’ compensation insurance covers medical care, lost wages, and other benefits if an employee gets hurt or becomes sick on the job.
For example, let’s say one of your employees is painting around the loading dock and falls 3 feet to the ground, dislocating his shoulder.
Fortunately, his injuries aren’t serious, but he needs a trip to the emergency room and will be out of work for several days.
This is where workers’ compensation kicks in. It could cover your employee’s trip to the hospital, medical bills, rehabilitation expenses, and lost wages for his time off work.
Workers’ compensation can cover:
- Medical payments
- Lost wages
- Rehabilitation expenses
- Death benefits
Workers’ comp coverage isn’t limited to unexpected accidents. It also may cover injuries and illnesses that develop over time due to certain activities at work.
For example, an employee who types at a desk all day could develop carpal tunnel syndrome. Depending on the nature of her injury, workers’ comp insurance may help pay for the medical treatment she needs to address her pain and discomfort.
Understand what workers’ compensation doesn’t cover.
Workers’ compensation insurance protects your small business, but don’t assume it will cover all your needs. That’s why it’s so important to partner with an insurance provider that can take the time to understand your business and make sure you’re fully covered.
Workers’ compensation does not cover:
- Client or vendor accidents
- OSHA fines
- Work safety improvements
- Wages for a worker who replaces the injured employee
As a small business owner, you may want to pair workers’ comp with additional coverage like general liability insurance, which covers the costs associated with third-party accidents, property damage, and bodily injury.
When considering workers’ comp, look at the big picture to ensure you are covered from all types of potential loss.
Review your policy annually.
Workers’ compensation insurance isn’t necessarily “one and done.” You’ll want to review your policy regularly to ensure that adjustments are made when there are changes in your business.
These may include the type of work your employees do, the state(s) where you operate, and your total payroll. Depending on the changes, you may be able to save money on your policy.
This brings us to the next burning question.
How Much Does Workers’ Compensation Insurance Cost?
At Simply Business, we know that securing workers’ compensation insurance can be overwhelming, so we’ll work with you to find a plan that provides the protection you need, meets your state’s requirements, and fits your budget.
What 3 factors help determine workers’ comp cost?
There are three main factors that determine the cost of workers’ compensation insurance:
1. Your industry.
It goes without saying that your workers’ comp costs will be affected by the type of business you run. That’s why construction companies and others that are riskier for employees generally will have higher premiums.
2. Your payroll size.
Your company’s annual payroll will be used to calculate your annual workers’ comp insurance costs, so you’ll need to have those figures on hand when you’re shopping for policies.
3. Your claims history.
If you’re a new business, you won’t have to worry about this. But if your business has had workers’ compensation claims in the past, your insurance costs could be higher. Insurance companies also will factor in the number of claims and the seriousness of the claims when determining your premium rate.
How your state affects the cost.
The location of your business impacts the cost of your workers’ comp insurance. Each state has its own laws — and those workers’ comp laws impact insurance premiums. State-regulated workers’ compensation rates are determined by the job classification of each employee.
Employee job classifications refer to the type of job an employee has. Office workers’ would be considered low-risk, whereas paramedics are considered high-risk. Typically, each worker classification is assigned a rate per $100 of payroll, with the rate being a multiple of that.
Many states set workers’ compensation rates based on guidance from the National Council on Compensation Insurance (NCCI). They maintain more than 700 class codes for workers’ comp, describing each job type’s level of risk to help determine an appropriate rate.
In today’s ever-changing world, it’s possible that your employee’s role could change or shift. Maybe they are working from home, or maybe they are suddenly confronted with more risk when dealing with the public. The NCCI continually monitors and reclassifies its codes, so stay on top of their changes to ensure your coverage is appropriate year to year.
How to reduce your workers’ compensation costs.
As a business owner, you’re responsible for covering the cost of the workers’ compensation insurance. While your employees benefit from this policy, they do not contribute to the coverage.
You may be worried about paying for a workers’ comp insurance policy, but these risk-prevention measures can help you save money and minimize your costs for the future.
Safety training
Take the time to educate your employees on workplace safety measures. This may include training your employees on potentially dangerous activities and teaching them how to perform tasks in ways that can prevent accidents and injuries.
Also, devote some time to reviewing safety rules and training employees so they can identify hazards and report accidents if they occur.
Property upkeep
An unhealthy environment can affect your employees’ well-being and morale. Make sure your office or building is well-maintained and up to code. Routine building inspections are a crucial part of ensuring that your workplace is safe and hazard-free.
Protective equipment
In addition to keeping your work environment safe, make sure your employees have quality protective equipment to do their job. This can greatly reduce the chance of accidents, injuries, or illness.
Helpful hint: Your workers’ comp premium is considered a business expense, which may mean it’s income tax-deductible. To be sure, seek advice from a tax preparer or an accountant.
At the end of the day, it’s all about preventing unfortunate accidents from happening in the first place. If you set your small business up for success from the start, you’ll limit the chance of anything going wrong. And that can help reduce your workers’ comp costs in the future.
Protect your small business with workers’ comp.
Workers’ compensation insurance is more than just another expense. Although it’s designed to benefit your employees, it keeps your small business healthy too.
When you get workers’ comp coverage, you’re not only doing the right thing legally. It also shows you care about your business and the people who help keep it running every day. And that’s the sign of a successful company.
Resources:
- News Release USDL-23-2359
- FitSmallBusiness.com (https://fitsmallbusiness.com/workers-compensation-insurance/)
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