Do I Need Workers' Compensation Insurance for My Small Business?
Workers' compensation insurance provides medical and wage benefits to employees injured on the job. Do you know what is required of you under state and federal law as a small business owner? Here are some questions answered and some scenarios raised to provide a clearer picture.
What is Workers' Compensation Insurance?
Most states in the U.S. require employers to provide coverage for their employees' work-related injuries and illnesses. The specifics of workers' compensation insurance vary by state, and insurers must comply with state laws.
What does workers' compensation cover?
A typical policy covers medical expenses, a percentage of wage loss, and death or disability benefits. Injuries employees sustain on the workplace premises or anywhere else while the employee is acting in the "course and scope" of employment are covered if their employer has workers' compensation insurance. It also covers certain illnesses and occupational diseases (defined by state law) contracted due to employment.
Who is eligible for workers' compensation insurance?
You may be eligible if (1) you are classified as an employee (full- or part-time); (2) your employer has workers' compensation insurance; (3) your injury is work-related, and you report your injury within any applicable reporting timeline; and (4) you attend medical appointments, examinations, and treatments.
For occupations such as maritime workers, federal workers, and interstate railroad workers, compensation for on-the-job injuries may be guaranteed.
Small Businesses with Employees
If you own a business with at least one employee and are not covered by a federal program, most state laws require you to have workers' compensation insurance.
Small Businesses without Employees
Business owners without employees are typically exempt from providing workers' compensation coverage. However, you should consider carrying this coverage because most personal health insurers won't cover medical expenses or wages lost during recovery due to work-related injuries. Also, you may not be hired by companies as an uninsured contractor since they could be liable should you suffer an injury on the job.
Factors Affecting Your Premium
There are several factors that may be used to determine your workers' compensation insurance premium:
These are typically assigned by a state insurance department or other regulatory entity for each job function within your industry. Jobs with higher risks usually have a higher rate-based classification. For example, a company that employs roofers might pay a higher premium than a company that employs accountants, because the risk and frequency of injury are more significant for roofers.
You will need to provide your insurer the salaries, wages, bonuses, and commissions of all employees performing a given job at your company to determine your workers' compensation premium. Failure to provide accurate information, including whether you employ seasonal employees, could result in you owing money after your insurer conducts a year-end premium audit. Your audit will include reviewing the actual payroll, operations, and job classifications for the prior policy term.
Your company's history of employee injuries or illnesses that required payment of workers' compensation medical coverage can affect your premium. Your experience rating is more sensitive to the number of claims (loss frequency) than the dollar value of claims (loss severity). A greater number of accidents indicates that overall working conditions are not as safe as an environment where fewer accidents occur.
Managing Your Risks
While small companies may not hire a risk manager, someone in your company should have responsibility for loss control and the management of your workers' compensation claims. This role includes developing safety and return-to-work programs for injured workers.
In some states, insurers must provide accident prevention services to policyholders. Even if not required to do so by law, most insurers can help you improve your workplace safety by recommending loss prevention measures to help reduce the risk of injuries. At NJM, for example, loss prevention resources are offered with each workers' compensation insurance policy.
Be sure to contact a licensed business insurance broker or agent, who can provide more detailed information about the coverage you need for your business, help solicit quotes from insurers, and answer any questions you have.
An independent agent can help business owners understand which products can best meet their needs.