small business workers' comp

clock June 30, 2021

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Does You Need Small Business Workers’ Comp Insurance?

In 2015, employers paid $61.9 billion in workers’ compensation benefits. That is a lot of money for businesses to be out. This is especially true for small businesses. Even after considering the financial impact that small business workers’ comp would have, you must also consider the legal obligation.

You may be surprised to find that your small business must meet certain requirements. Read on to find out if your small business really needs worker’s comp insurance.

Legal Requirements

First and foremost, it is important for small business owners to understand that there are legal obligations for them regarding workers’ comp insurance. No matter how safe or small the industry may be, there are still risks.

Depending on the state, industry, size, structure, and payroll you may face different requirements. The first step in determining your specific rules is understanding your state’s laws.

As an example, we will compare the state of California, Texas, and Florida. California requires any and every employer to carry workers’ comp insurance. This includes those who have one employee. There are two exceptions to this rule; sole proprietors without employees and executive officers and directors of corporations unless fully owned by the directors and officers.

Texas on the other hand states that workers’ compensation insurance is optional. The only requirement is that construction companies who are on contract for governmental entities must have coverage. Those without insurance are covered under state insurance but can opt-out, putting the liability of a civil suit on them.

Florida requires construction businesses that have one or more employees and non-construction employers with four or more employees to carry coverage. Agricultural businesses that have six or more regular employees and 12 or more seasonal employees who work for more than 30 days must also have coverage. Florida has a long list of very specific requirements that add to these.


If your state requires you to carry coverage and you fail to do so, you may also face penalties. In California, these penalties include a misdemeanor criminal offense charge and a fee of up to double the amount of the premium but no less than $10,000.

The employee will also have an automatic increase of 10% in permanent disability. The employer will not be able to hire or retain employees until they obtain the correct coverage. Other states will have varying degrees of punishment.

Financial Impact

Surely, the legal requirement is enough to answer the question of “does a small business need workers comp insurance?” However, there are even more reasons that one would want to have peace of mind when it comes to coverage.

If you are in a state that does not require workers comp insurance for small businesses, there is another huge reason you’ll still want to get the coverage which is the financial obligation.

The average cost of a workers’ comp claim was $41,003 in 2018. With that number in mind, imagine if you had to pay that as a small business owner. It would likely not be an easy feat.

Therefore, it may be better to pay the premium month to month on workers’ comp insurance. With coverage, employers were only responsible to pay around $1.30 out of every $100 paid for workers’ comp.

Industries with the Biggest Risk

Again, you may not be required by law to have coverage. But, it is vital that you consider the risks associated with the industry you are operating in. There are many industries that have hazardous work environments.

In 2019, the most dangerous industries were construction, government, agriculture, and transportation/warehousing. The construction industry experienced the most deaths out of any. The government-industry experienced the most nonfatal injuries and the most days away from a work-related illness.

If you are operating within one of these industries, it may be worth considering looking into small business workers’ compensation coverage. Other dangerous industries included mining, wholesale trade, leisure, retail trade, utilities, financial activities, health services, information, and manufacturing. 

What Happens Without Coverage?

When you do not have workers’ compensation coverage, your employees can still get money from you. As previously mentioned, you are then liable and may face a civil suit for a workplace injury. In addition, you may face workers’ compensation court.

In civil court, they will file a personal injury claim against you. This means that the employer must be at fault and does not possess workers’ comp coverage at the time of employment. They can not pursue both courts at one time and if they do the payments from one court counts towards the other as well.

It is also important to know that the injured employee has three years to file a claim from the date of the injury.

Who Pays When You Can’t?

The sad truth is that this situation can bankrupt some businesses. This is the main reason as to why instead of “needing” the coverage, you will “want” it.

Some states such as California have programs like the Uninsured Employers Benefits Trust Fund (UEBTF). This was created so that employees who are injured can still be paid when their employer is illegally uninsured.

Your Business Needs Small Business Workers’ Comp Insurance

Even when it isn’t required by law, you need small business workers’ comp. This isn’t just another thing to add to your bills. Being properly covered offers you peace of mind and can potentially save your business from failure.

Beyond requirements and risks, you should be invested in protecting the health and safety of your employees. This is one thing you don’t want to skip.

Do you need help getting workers’ compensation insurance coverage? Contact us today for expert help from our professional team!

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