Is Workers’ Comp Insurance Mandatory for Small Businesses?

You have your business up and running and now all you have to do is hire employees. Before you accept applications you will need to do a little paperwork, including some for workers’ comp insurance.

Depending on what kind of business you’re running and how many employees you have, you may or may not be required by your state to get it. There is a little gray area in there that we will go over.

Here is a quick guide on everything you need to know about providing your employees with workers’ comp insurance.

Watch our video summary below:

1. What is Workers’ Compensation Insurance?

Workers’ compensation insurance is a policy you buy that can pay for your employee’s medical expenses if they are hurt on the job. So, if one of your employees slips on a wet floor in your retail business and throws out their back they would file a workers’ comp claim.

This claim will cover their medical expenses as well as compensate them for any wages they miss out on while they’re out of work. They carry this out no matter if you’re at fault because you forgot to put up a wet floor sign or they’re at fault because they didn’t read the sign.

2. Why Does Your Business Need it?

Most states require small businesses to have workers’ compensation insurance. You must read up on the laws of your state to find out if you need to have it or not. If you need to get it and you don’t have it, you can get into hot water.

Not only would you be required to pay for your employee’s medical bills out of your own pocket but you would most likely get hit with a hefty fine.

3. Am I Required by Law to Have it?

Again, the law varies from state to state with this so you must check. It depends on the number of employees you have and what sort of business you run.

Generally, if you have five employees or more, you must have it, but certain businesses can opt-out if the employees are:

  • Business owners
  • Independent contractors
  • Volunteers
  • Farmers
  • Employees of private homes
  • Railroad employees
  • Temp workers

There is also an exception regarding family-owned businesses. If you don’t have any employees working for you that aren’t also family then you may put off getting workers’ comp insurance until that changes.

This law varies from state to state, so you must check before you opt-out.

4. What Injuries Does it Cover?

Workers’ compensation insurance covers any employee who injured while on the clock. So, if one of your drivers get into an automobile accident while running deliveries, they can still be covered even though they weren’t at your establishment when they got hurt.

Workers’ comp will also cover illnesses that spawn from the workplace. If one of your employees is hospitalized because they inhaled some toxic chemicals while working and got sick, it will cover them.

Other things that it may cover is lost wages, the cost of retraining if they were out for a long time, living expenses if they have a permanent disability and can’t go back to work, and benefits to their family if they have a fatal accident on the job.

5. How Much Coverage Does Your Business Need?

The amount of coverage that your business will need depends on the number of employees you hire, the level of danger that they will be exposed to while on the job and if you have any history of accidents on the job prior.

To give you an example, jobs such as construction will need a higher amount of coverage than office jobs. This is because construction companies usually have more employees and there is more risk for danger.

This being said, the business owner for the office should still take out a small policy even if their employees aren’t in a lot of danger. A tiny risk is still a risk and company health insurance rarely covers workplace accidents.

6. Where Can You Get a Policy?

You will need to get your workers’ comp insurance either through the state or through a private provider. It depends on the laws set by your state.

If you can go through a private insurer, do your research. Read reviews to find a great provider who can handle the job. It costs nothing to talk to a company so call several to compare quotes.

7. What Isn’t Covered?

Workers comp policies cover what the state requires them to cover. It’s a lot, but not everything. It may not cover a lawsuit that came from an employee’s own negligence.

For example, an employee who got into an accident from driving the company’s car while under the influence of alcohol may not be covered. You may need to take out employer liability insurance to cover instances such as these.

Getting Workers Comp Insurance For Your Small Business

When you’re opening up a new business, you may need to get workers’ comp insurance before you hire employees. It will cover them if they are injured on the job. It’s required by most states and if you don’t have it you may have to pay a fine.

Don’t let an employee accident catch you off guard. Be ready with workers’ compensation insurance.