What is Workers’ Compensation Insurance?

If you’re an employer, you know that your employees are your #1 asset. Without them, your business would probably not exist. However, accidents do happen and employees can be subject to injury—or worse, death. Because of this, most employers are legally obligated to take reasonable care of the employees should such an even occur. This is where having workers’ compensation insurance provides coverage.

Not entirely sure what workers’ compensation insurance is? Read on.

Purposes for Worker’s Compensation Insurance

• It assures that injured workers get medical care and compensation for a part of their lost income while they’re unable to return to work,
• If a worker is killed while working, workers comp (the abbreviation) provides death benefits for the worker’s dependents, and
• It usually protects employers from lawsuits by workers injured while working/employed.

Exceptions to Workers Comp Requirements

Every state has different laws regarding whether worker’s compensation insurance is mandatory based on the status of your employees. Some of these include:

• If your business is run by a sole proprietor and/or partnership, most states will not require workers’ comp (until they begin having employees who aren’t owners).
• Some states waive workers’ comp requirements for commission-only employees and businesses that only have a few employees.
• Some states waive workers’ comp requirements for immediate family members (children, spouse, parents), but require it for other family, such as siblings and in-laws.
• Subcontractors and independent contractors are a grey area, as they are not considered strictly part of your workforce. However, most larger companies require contractors to have their own workers’ comp.

Every state has its own handling of mandatory requirements, so it may be in your business’ best interest to speak to an insurance agent to find your insurance responsibility. Nevertheless, if an employee is injured or killed while working on your behalf, you will be legally responsible for their subsequent claims. This can bankrupt many small business, so it usually is in the best interest of a business to have insurance.

What Injuries are Covered by Workers’ Comp?

Not all injuries that employees sustain are covered by workers’ comp. Essentially, an injury an employee sustains at the workplace or acting in the “course and scope” of employment (deliveries, for instance) is covered. Commuting to and from work is not. Exposure to and illnesses from chemicals from work are valid claims for workers’ comp. Illness resulting from smoking tobacco and drug abuse are not.

Events like workplace violence, terrorist attacks, and natural disaster also are covered by workers’ comp.

The Cost of Workers Comp

Workers’ comp costs generally include insurance premiums, payments made under deductibles and the administrative costs of handling claims and making reports to the state and your insurer.

Premiums are based on the industry and payroll of the employer, with more dangerous jobs (ex. logging) requiring steeper premiums. Location also factors into the price of premiums—areas with a high potential for disaster (natural and man-made)—hike up the price of premiums.

To temper rising costs, companies that have a better history of avoiding workplace accidents are generally rewarded with lower premiums than businesses that have a higher frequency of accidents/death.

*NOTE: Be aware that workers’ comp is not included as part of your Businessowners Policy (BOP) and must be purchased in addition to your pre-existing plans.

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Of course, we have only scratched the surface on the finer points of workers’ compensation insurance. Because each topic necessitates an in-depth explanation, varying by state and industry, it is recommended that you speak to a qualified insurance specialist today to determine your insurance responsibility. Click here  to begin!