Workers Compensation Insurance: How to Know When You Need It

As a small business owner, you deal with risk and uncertainty every day. And the stakes get even higher when you begin hiring employees.

The U.S. Bureau of Labor Statistics has estimated there were 2.7 million employee workplace injuries and illnesses in 2020, which means 2.7 out of every hundred full-time employees had an incident.

Fortunately, this is one inherent risk you can mitigate with workers compensation insurance.

Of all the types of insurance you hear about, workers comp is one that you may be required by law to have. Your responsibility to provide workers comp insurance depends on the type of business you run, where you operate, how many employees you have, and other factors.

It's crucial to know if you need workers compensation insurance for your small business, and we can help you find the answer.

In this article, we'll cover these important topics:

• What is workers compensation insurance?
• Why is workers comp important?
• What are the benefits of workers compensation insurance?
• How do I get workers comp coverage for my small business?
• How much does workers comp insurance cost?

Let's get started.

What is Workers Compensation Insurance?

It doesn't matter what type of business you run — if you have employees, there's always a chance that they can get injured or sick on the job. That's where workers compensation comes in.

Workers compensation, also known as workers comp, is insurance that provides medical and wage benefits to employees who get injured or sick on the job.

As a small business owner, carrying workers compensation insurance can provide you with much-needed security, as this type of coverage usually prevents an employee from suing your business for a workplace injury.

Many business owners wonder, "Do I need workers comp insurance?"

If you have employees, the answer is generally yes.

Workers compensation is state-mandated, and nearly every state requires businesses with employees to carry workers compensation insurance. And some states even have severe penalties if you are noncompliant.

Be sure to check the workers comp laws in your state to learn the requirements for your business. If you operate in more than one state, you need to comply with the law in each of those states.

Do I need workers comp insurance if I don't have employees?

A business owner with no employees is typically exempt from carrying workers comp insurance. Again, check your state laws to be sure. Even if you don't have employees, you still may need to purchase workers compensation insurance for your business (more on that later).

How Does Workers Comp Insurance Work?

A workers compensation claim usually begins with an employee. When a worker is injured on the job, they should first notify their employer of the incident. A workers compensation claim is then filed against the employer's insurance policy.

The process is fairly straightforward, but here are a few essential steps you should know:

Step 1: The incident is reported to the employer.

If one of your workers has an incident, they should notify you of the situation as soon as possible, since you will need to document the event's date, time, and its circumstances.

Step 2: The employee seeks treatment.

Your employee should promptly seek medical treatment for their injuries or illness. The employee's health care provider completes a medical report, which is sent directly to the insurance company.

Step 3: A workers comp claim is filed.

In most cases, you'll be responsible for filing the employee's workers compensation claim with your insurance company. Remember, the claim gets filed against your policy, not you.

Step 4: The insurance company makes a determination.

It's up to your insurance carrier to decide whether the employee's claim is valid or not, based on the information provided.

If they approve the claim, the employee can either accept the payment offered by the insurance company or negotiate a settlement for a lump-sum payout. If the insurer denies the claim, your employee has the right to appeal the decision.

While the claims process isn't complicated, it could become messy if you skip one of these steps. To ensure that your employees know how workers comp insurance works, it's always wise to provide them with workers comp training.

Workers Compensation Insurance is an Absolute Must for Small Business Owners

You may wonder, "Do I need workers comp insurance if I own a small business?"

One thing is certain. If your small business has employees, workers compensation is insurance coverage you don't want to be without. There are so many reasons why workers compensation is important. Let's begin with a non-negotiable one:

It may be required by law.

As mentioned previously, each state has its own laws regarding workers compensation. As a small business owner, it's up to you to follow the law and purchase workers comp insurance when you hire your first employee. That includes any part-time or seasonal workers too.

It may cover legal fees.

Hopefully, you'll never be faced with a lawsuit from a Workers Compensation claim. Fortunately, Workers Compensation policies include coverage for legal defense in the event of a claim.

It may be requested of you.

Certain projects may require that you carry workers compensation insurance. If you're a contractor who has employees and you need to pull a permit, you may be asked for a certificate of insurance (COI) to prove that your business is protected in the case of an employee injury.

No workplace is hazard-free. Even in the safest environments, your employees can experience work-related accidents or injuries. With workers compensation, your employees have a plan in place if they require medical costs and wage replacement benefits.

5 Benefits of Workers Compensation Insurance

When it comes to protecting your small business, the benefits of workers compensation insurance are worth noting. Here are five compelling reasons why workers compensation is important:

1. It provides financial support to your employees.

The only thing worse than getting injured or sick on the job is facing the financial burden of a hospital bill. If your employee has an incident, your workers comp can cover the cost of their medical bills, providing them with financial relief. Additionally, it can cover their lost wages should your employee have to take time off to recuperate.

2. It protects your business from financial loss.

Let's say that you don't carry workers compensation and your employee has an accident on the job. The financial repercussions could be devastating. The burden would fall on your business, and you would likely be required to cover your employee's medical costs and wages. Workers comp insurance protects your business in the event a claim is filed.

3. It limits the likelihood of a lawsuit.

Workers compensation was created as an alternative to filing a personal injury lawsuit. Generally speaking, if an employee has an accident and collects benefits, they cannot sue your business. While there are exceptions, employees usually get the financial support they need due to their workers comp claim, making it unnecessary for them to file a lawsuit.

4. It helps employees get back to work.

Long absences from work can have a negative impact on employees and your business. Helping an injured employee get back to work may mean modifying their work activities or their job role. Workers comp insurers can help you assess your injured employee's needs and capabilities to help them return safely to work.

5. It creates employee trust.

As a small business owner, having workers compensation insurance says that you're prepared to help support your employees if the worst should ever happen. Employees want to know that they are valued. When you carry workers comp insurance, it sends a positive message and gives them peace of mind.

How Do I Get Workers Compensation Insurance?

Choosing the best workers compensation insurance for your small business may seem like a daunting task, but we'll help you get started with a few tips:

Know your state's requirements.

The answer to, "Do I need workers comp insurance?" may depend on where your business operates. Do a bit of homework to understand the workers compensation laws in your state. If your employees work in multiple states or you plan to expand your business into other states, make sure you take that into account when you get coverage.

Find an experienced insurance provider.

When it comes to finding the best policy for your business, partnering with a knowledgeable provider is invaluable. At Simply Business, our licensed insurance agents will take the time to understand your specific needs and find the right policy for your business.

Ready to talk today?

Give us a call at 855-930-2844. You'll be connected with a licensed insurance agent who can answer all your workers comp questions.

Understand what workers compensation covers.

Workers compensation insurance covers medical care, lost wages, and other benefits if an employee gets hurt or becomes sick on the job.

For example, let's say one of your employees is painting around the loading dock and falls 3 feet to the ground, dislocating his shoulder.

Fortunately, his injuries aren't serious, but he needs a trip to the emergency room and will be out of work for several days.

This is where workers compensation kicks in. It could cover your employee's trip to the hospital, medical bills, rehabilitation expenses, and lost wages for his time off work.

Workers compensation can cover:

• Medical payments
• Lost wages
• Rehabilitation expenses
• Death benefits

Workers comp coverage isn't limited to unexpected accidents. It also may cover injuries and illnesses that develop over time due to certain activities at work.

For example, an employee who types at a desk all day could develop carpal tunnel syndrome. Depending on the nature of her injury, workers comp insurance may help pay for the medical treatment she needs to address her pain and discomfort.

Understand what workers compensation doesn't cover.

Workers compensation insurance protects your small business, but don't assume it will cover all your needs. That's why it's so important to partner with an insurance provider that can take the time to understand your business and make sure you're fully covered.

Workers compensation does not cover:

• Client or vendor accidents
• OSHA fines
• Work safety improvements
• Wages for a worker who replaces the injured employee

As a small business owner, you may want to pair workers comp with additional coverage like general liability insurance, which covers the costs associated with third-party accidents, property damage, and bodily injury.

When considering workers comp, look at the big picture to ensure you are covered from all types of potential loss.

Review your policy annually.

Workers compensation insurance isn't necessarily 'one and done.' You'll want to review your policy regularly to ensure that adjustments are made when there are changes in your business.

These may include the type of work your employees do, the state(s) where you operate, and your total payroll. Depending on the changes, you may be able to save money on your policy.

This brings us to the next burning question.

How Much Does Workers Compensation Insurance Cost?

At Simply Business, we know that securing workers compensation insurance can be overwhelming, so we'll work with you to find a plan that provides the protection you need, meets your state's requirements, and fits your budget.

Your workers compensation insurance can be customized to your specific risks, so you don't have to pay for what you don't need. Check out our state-based insurance hub. You'll find recent workers comp requirements for your state and other important information.

Three factors that affect workers comp cost.

There are three main factors that determine the cost of workers compensation insurance:

1. Your industry.

It goes without saying that your workers comp costs will be affected by the type of business you run. That's why construction companies and others that are riskier for employees generally will have higher premiums.

2. Your payroll size.

Your company's annual payroll will be used to calculate your annual workers comp insurance costs, so you'll need to have those figures on hand when you're shopping for policies.

3. Your claims history.

If you're a new business, you won't have to worry about this. But if your business has had workers compensation claims in the past, your insurance costs could be higher. Insurance companies also will factor in the number of claims and the seriousness of the claims when determining your premium rate.

How your state affects the cost.

The location of your business impacts the cost of your workers comp insurance. Each state has its own laws — and those workers comp laws impact insurance premiums. State-regulated workers compensation rates are determined by the job classification of each employee.

Employee job classifications refer to the type of job an employee has. Office workers would be considered low-risk, whereas paramedics are considered high-risk. Typically, each worker classification is assigned a rate per $100 of payroll, with the rate being a multiple of that.

Many states set workers compensation rates based on guidance from the National Council on Compensation Insurance (NCCI). They maintain more than 700 class codes for workers comp, describing each job type's level of risk to help determine an appropriate rate.

In today's ever-changing world, it's possible that your employee's role could change or shift. Maybe they are working from home, or maybe they are suddenly confronted with more risk when dealing with the public. The NCCI continually monitors and reclassifies its codes, so stay on top of their changes to ensure your coverage is appropriate year to year.

How to reduce your workers compensation costs.

As a business owner, you're responsible for covering the cost of the workers compensation insurance. While your employees benefit from this policy, they do not contribute to the coverage.

You may be worried about paying for a workers comp insurance policy, but there are ways your small business can save money and minimize your costs for the future.

Safety training

Take the time to educate your employees on workplace safety measures. This may include training your employees on potentially dangerous activities and teaching them how to perform tasks in ways that can prevent accidents and injuries.

Also, devote some time to reviewing safety rules and training employees so they can identify hazards and report accidents if they occur.

Property upkeep

An unhealthy environment can affect your employees' well-being and morale. Make sure your office or building is well-maintained and up to code. Routine building inspections are a crucial part of ensuring that your workplace is safe and hazard-free.

Protective equipment

In addition to keeping your work environment safe, make sure your employees have quality protective equipment to do their job. This can greatly reduce the chance of accidents, injuries, or illness.

Helpful hint: Your workers comp premium is considered a business expense, which may mean it's income tax-deductible. To be sure, seek advice from a tax preparer or an accountant.

At the end of the day, it's all about preventing unfortunate accidents from happening in the first place. If you set your small business up for success from the start, you'll limit the chance of anything going wrong. And that can help reduce your workers comp costs in the future.

Understanding the benefits of workers compensation insurance.

Following the law is important, but it isn't the only reason to get workers compensation for your small business.

Having the policy also can:

• Protect your business's finances in the event a claim is filed
• Prevent your business from being wiped out by a catastrophic claim
• Pay for legal fees if you need to defend yourself against a lawsuit
• Build trust with your employees
• Give employees a sense of security that they'll be taken care of should the worst happen
• And more

When it comes to finding the best insurance, you'll want a knowledgeable partner who will take the time to understand your needs and find the right policy for your business.

Protect your small business with workers comp.

Workers compensation insurance is more than just another expense. Although it's designed to benefit your employees, it keeps your small business healthy too.

When you get workers comp coverage, you're not only doing the right thing legally. It also shows you care about your business and the people who help keep it running every day. And that's the sign of a successful company.

At Simply Business, we help small businesses like yours to find workers compensation insurance that fits your needs. If you’re still wondering, “Do I need workers comp insurance,” let us help you find the right coverage.

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