What Every Small Business Owner Needs To Know About Workers Comp

Worker’s compensation laws are meant to protect both the employee and employer. Here’s what every small business owner needs to know about workers comp.

As a small business owner, do you know what you need to know about your workers compensation policy?

As soon as you start hiring workers, you should start thinking about workers comp. These policies are in place to protect both you and your employees. If you delay putting a workers compensation policy in place, you’re putting everyone involved at risk.

Save time, money, and worry by learning what you need to know about workers comp now. In this guide, we’ll walk you through all the details. Keep reading to learn more!

What is Workers Comp?

As a small business owner, you’re required to take reasonable precautions to make sure your workplace stays safe for your employees. However, accidents still happen, no matter how careful you are.

Workers comp insurance companies exist to identify workers comp classification or rate and to make sure that if your employee gets a work-related injury or illness, their medical care will be covered. These companies also cover employee wages if they can’t go back to work due to the accident.

Whether the person at fault is the small business owner, the employee, a co-worker, or a customer, the employee will be covered. Because they have these benefits, employees forfeit some of their rights to sue employers for damages.

Workers comp programs are regulated by the state, so your state dictates exactly what injuries and illnesses are covered, how each case gets evaluated, how medical care should be given, and what benefits employees can receive.

Why a Small Business Owner Needs Workers Comp

You can check to see whether or not a workers compensation policy is legally required in your state. If it’s required and you don’t have workers comp insurance, you might have to pay your employee’s benefits out of pocket, and you might even have to pay state penalties too.

However, even when it’s not legally required, it’s a good idea to have workers comp insurance to protect you and your employees. Paying for these expenses out of pocket can permanently damage your business’s future. Not only that, but an injured employee can hire workmans comp lawyers and sue you.

No matter how well your business is doing, those expenses and potential legal trouble will hurt you. It’s much better to stay safe by getting workers compensation insurance.

Who Has to Purchase Workers Comp

That said, not all employers have to get workers comp insurance if they don’t want to. The laws depend on the state, but for the most part, your responsibility for offering workers comp depends on how many employees you have, your business type, and exactly what your employees do on the job.

Some states also exclude some types of workers from workers comp policies. Domestic employees, farm workers, and seasonal workers aren’t always required to be covered.

As a sole proprietor, you also typically don’t need to have workers comp, unless you hire some employees who aren’t co-owners. Some states don’t require coverage if you hire immediate family members as part of the business. For the exact details or your state, check out this list from the U.S. Dept. of Labor.

How Do You Get Workers Compensation Insurance?

Workers comp insurance companies usually offer policies that are separate from your business insurance. Again, it depends on your state: some states allow you to buy from private insurance companies, or the state, or both. If your state offers a state fund, this can make a good last resort when you aren’t able to find a private insurer to cover you.

If your state does offer the private insurance option, you should look for a provider that has top ratings, that understands workers comp well, and that offers the right kind of coverage for your small business.

How Are Workers Comp Premiums Set?

Workers comp premiums get calculated based on your payroll and your industry’s classification code. However, if your workers do dangerous activities as part of the job, your premiums will probably be higher.

Premiums can also vary depending on location. If you’re a small business owner in a high-risk area, you’ll pay more for workers comp. And, if you have past claims, those will be taken into consideration as well. If your company has had more claims than comparable area businesses, you’ll have to pay more for insurance.

Cost of Workers Compensation Policies

As a small business owner, you might be worried about the cost of covering your employees. In addition to paying workers comp premiums, you’ll also need to be able to make payments under deductibles, pay for handling claims administratively, and pay to report to your insurer and your state.

In order to keep these expenses manageable, it can be a good idea to seek out a provider that offers pay-as-you-go options. With this kind of billing, your payments are always based on your payroll numbers in real time, and you can pay premiums after each payroll. Otherwise, you’d need to make bigger payments up front, which can be hard for a small business owner.

What Workers Comp Can’t Do

Even though workers comp exists to help protect you and your employees in case of injury or illness, having these policies does nothing to prevent those injuries or illnesses from occurring.

As a small business owner, that prevention is up to you.

If you don’t have one yet, start developing a workplace safety plan. Have enforced policies to help reduce work-related risks. Add the proper signage when needed, and offer training for your employees to help them know how to stay safe on the job.

Wrapping Up

When you’re a small business owner, your employees are your responsibility – at least in part.

It’s important to do everything you can to keep your valued workforce safe. Having workers comp insurance is part of that.

Of course, these policies also protect you by keeping lawsuits and high medical bills from affecting your business.

Looking for more small business advice? Check out our guide to using a business bank here.