Author: Kimberlee | November 1, 2024
Edited by: Kimberlee and Reviewed: Kimberlee
Workers’ compensation insurance is an essential business insurance policy that most businesses with employees will need. The rules are dictated by state laws, so you’ll need to check with your state-licensed insurance agent to determine whether or not you are required to get this policy. All states have some requirement except Texas, which doesn’t require workers’ compensation for any business.
Most small business owners will need to get workers’ compensation insurance. This policy pays for medical care and lost wages of employees who are injured or become ill when working. It will also pay for rehabilitation care, and in some states, it will pay for retraining if necessary.
In most states, a small business with at least one part-time employee will need to have a workers’ compensation policy. There are some states that have looser requirements, allowing a company to have a small number of employees prior to needing a policy. These numbers may be anywhere from one to five employees. It doesn’t matter if the employees are part-time or full-time.
While independent contractors and freelancers are usually exempt from needing to get a policy based on state law, they may be required to get a policy based on contract terms with a job they land. This is especially true with contractors whose general contractor may require a policy to ensure everyone on the job is covered by workers’ compensation, and he isn’t responsible for contractors who get injured while working.
Let’s take a closer look at who determines the requirements for small businesses to get a workers’ compensation policy.
No federal regulations mandate a small business to get a workers’ compensation policy. However, there are federal regulations through OSHA that govern work safety rules.
Each state has a law regarding workers’ compensation insurance. Most states are fairly uniform in requiring a small business with at least one part-time employee to get a policy. Texas is the exception where no workers’ compensation insurance is required. Alabama is an example of a state where a small business won’t need a policy until they have at least five employees.
Workers’ compensation is not mandated based on the industry in which you work. However, pricing for industries where injuries are at a higher risk will be higher than those with fewer risks. Even if insurance is not required, it is a good idea to carry insurance for work-related injuries so that you are not financially responsible for the medical costs and lost wages. Without insurance, employees with work-related injuries can sue you for damages, which can cause a small business to go bankrupt.
Employers are at risk of incurring negative consequences if they don’t have workers’ compensation insurance.
The legal penalties and fines will vary from state to state. Employers can expect to face misdemeanor charges and fines that may be something like $100 per day if there is no insurance. Sole proprietors and independent contractors are generally exempt from being required to have the policy unless they enter into a contract where it is required. If that is the case, there is no legal penalty for not having it; it is just a contractual failure.
When employers have workers’ compensation insurance, they prevent an employee from suing them for negligence in most cases. Without insurance, the employer is responsible for the costs associated with a work injury claim. This includes medical bills, death benefits, lost compensation, and rehabilitation expenses.
Business owners who have workers’ compensation insurance generally have a better relationship with their employees. Employees gain trust in employers who have a policy compared to those who don’t.
Small businesses that don’t carry workers’ compensation for employees may find that they have a negative public reputation. Consumers may feel that the employer doesn’t care about their employees and may choose to do business elsewhere if the company doesn’t have a policy for work-related injuries for part-time and full-time employees.
Every employer must asses their workforce and stack that up against the state requirement for workers’ compensation insurance. You may choose to get higher-benefit policies for work-related injuries if your company engages in high-risk activities. For example, a roofer is more likely to get injured than an accountant. Talk to your insurance broker or agent about your options to get a policy put in place for work-related injuries.
You’ll likely want to shop a policy around before making a commitment, as different insurance carriers have different pricing for different industries. Some have a bigger appetite for some industries than others, which gives them more favorable pricing. Check out our guide to the best workers’ compensation companies to get an idea of who to shop with.
Getting workers’ compensation before your first employee starts their first shift is important. Remember, the law can penalize you if you don’t have a policy in place, and those penalties are based on a daily basis in most cases. Once you have a policy, review it annually to get a sense of whether or not you’re still getting a good deal. With a policy in place, you can rest assured that you are protecting your employees and your company’s financial health by having one.
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December 2, 2024
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