If you own a business with one or more employees, you are required to maintain a safe workplace. In the event that an accident does happen, however, you are also required to carry workers’ compensation insurance. Have questions about this insurance? That’s understandable – it can be very confusing! Read on to learn the answers to the most commonly asked questions about workers’ compensation.
What Is Workers’ Compensation Insurance?
This insurance provides a benefit to both employers and employees. Any employee who suffers an injury or illness related to the job will receive necessary medical care, as well as wage replacement. It doesn’t matter who may be at fault for the injury. On the other side of the equation, employees give up some of their legal rights to sue for damages. That protects the business owner from devastating financial consequences, bankruptcy, or closing the business.
Every state except Texas requires business to carry workers’ compensation insurance to some extent, or in some instances. In some states, the requirement may only apply to businesses of a certain size. In Florida, for example, businesses with fewer than four employees do not need to carry workers’ comp insurance.
Who Is Covered?
Workers’ compensation is handled on a state level. Therefore, specifics regarding who can be considered an employee, and which employees are covered by worker’s comp, will vary from state to state. The employer’s responsibility to provide it may also depend on the nature of the business, the number of employees, or the type of employees. In many states, domestic employees, farmworkers, seasonal or casual employees, part-time workers, and independent contractors are not considered employees of the company and are not covered by workers’ compensation.
In some states, family members of the business owner(s), even though they may draw a paycheck, are not considered employees and therefore do not require coverage.
Where Does a Business Get Workers’ Compensation Insurance?
Depending on the state, workers’ compensation insurance may be offered by the state, by private insurers, or both. In many cases, the same insurer that handles your business insurance will provide workers’ comp. There are also insurance companies that cater to small businesses. Additionally, some payroll services partner with insurance providers to handle benefits such as workers’ compensation, health insurance, 401(k) accounts, and the like. That can help save the business money, time, and the hassle of maintaining separate policies and accounts.
Many states have special funds set aside in their coffers — often called Uninsured Employers’ Funds — that will pay out to injured employees if the company they work for does not carry workers’ compensation insurance.
Failure to carry workers’ compensation insurance can result in expensive fines and even criminal charges. It also may make the business more vulnerable to legal action. When an injured employee brings a lawsuit against a company, they usually seek compensation not only for medical bills and lost wages, but also for pain and suffering. That’s a risk that most small businesses can’t afford to take. Even if your company is not required by law to carry compensation insurance, it’s a smart idea to carry it nonetheless.
Does Workers’ Compensation Cover Every Accident, Injury, or Illness?
No. Most occupational illness and injuries are covered, but there are some instances in which a compensation claim will be denied. These include cases in which:
- The employee was intoxicated or under the influence of drugs or alcohol at the time of the injury
- The injury was self-inflicted, either directly or indirectly
- The injury occured while, or because, the employee was in violation of company policy (for example, refusing to wear mandated safety gear)
- The injury occured while the employee was not working
- The illness is unrelated to work (for example, a hereditary condition)
My Company Already Carries General Liability Insurance. Do I Still Need Workers’ Compensation Insurance?
Yes. General liability insurance protects your business in the event that a vendor, customer, or any other non-employee is hurt or injured during the course of doing business with your company, or while on your company’s property. It also covers you in the event that you or your employee damages a non-employee’s property, and in cases of libel, slander, and trademark infringement.
In short, general liability covers everything that workers’ compensation doesn’t, and vice versa. You need both for your business to be completely protected from potential lawsuits.
What Else Is There to Understand About Workers’ Comp?
As you have likely already gathered, the subject of small business insurance, including workers’ compensation insurance, is a complicated one. If your company requires insurance, or if you want to double-check that you’re in compliance, start by looking into the laws of your state. Your business insurance agent or attorney can also advise you.
Whether your employees are at risk for construction accidents in New York, repetitive stress injuries in Arkansas, or machinery accidents in Alaska, make sure that your business is protected by purchasing workers’ compensation insurance.
