workers comp insurance
workers comp insurance

clock January 21, 2019

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Understanding Workers Comp Insurance: When You Need It and Why

In 2017, over 5,000 workers were fatally injured at work. In just 1 year, medical benefits and wage loss compensation amounts to over $30 billion each. Without workers comp insurance, employers would be left making those payments out of their own pockets.

And if you don’t have workers comp insurance for your employees, that could be you.

With some exceptions, most business owners are required to provide workers compensation insurance for their employees. But what does it cover, how much does it cost, and are you the exception? Keep reading to find out. 

What is Workers Comp Insurance?

Workers compensation was the first type of social insurance in the US. This insurance program provides benefits to employees that are injured on the job or who become ill as a result of their job. It provides compensation such as lost wages to ensure the employee is financially secure while they recover.

Every state has their own rules for workers compensation. The state sets the minimum requirements, coverage exemptions, and levels of financial protections that are provided in the case of injury or illness.

Workers comp covers workers even when the accident is their fault. As long as horseplay or some other extenuating circumstance isn’t involved, workers compensation is no-fault insurance. However, you are allowed to drug test employees if you suspect the accident was substance-related. 

Who Needs Workers Compensation Insurance?

If you’re a business owner with employees, you probably need workers compensation insurance. Almost all states require that employers have insurance to cover employees involved in accidents or who get sick as a result of their job. 

Other than in Texas, employers must purchase workers comp insurance through a private insurer or state insurer. In some instances, you might be allowed to self-insure.

If an employee is seriously hurt or even fatally injured while performing their job and you don’t have workers compensation, you might be held legally liable. Not having workers compensation doesn’t mean that you’re absolved from providing and paying for compensation.

Without workers compensation insurance, you could be left paying tens of thousands from your own pocket. The cost of 1 serious injury claim would be enough to bankrupt some small businesses.

How Much Is Workers Compensation?

Having a Businessowners Policy (BOP) doesn’t cover you for workers comp insurance. You have to purchase workers compensation insurance separately from your business insurance.

Where you purchase workers comp insurance will depend on the state in which you live. Some employers have to purchase insurance from a state monopoly insurer while other states require employers to purchase insurance from private insurers. The cost of purchasing workers compensation varies depending on where you’re located.

In terms of workers compensation payouts, these are also set by the state. States are responsible for setting:

·         the number of benefits

·         what injuries and illness are covered

·         how injuries and illness are evaluated

·         how treatment and care is delivered

·         how claims are handles

·         how disputes are handles

Because they set the minimums for compensation and eligibility, there’s little room to reduce the amounts of injury and illness compensation. But if an employee collects workers compensation for an injury or illness, they’re unable to sue their employer for damages such as pain and suffering.

How Do Workers Compensation Premiums Work?

The premium you pay is calculated based on your payroll and your industry classification code. Typically, more dangerous jobs or industries pay higher premiums than office jobs, for example. But the area in which you work, and the history of your businesses’ insurance claims can also affect your premium.

Are There Exemptions for Workman’s Comp?

This type of insurance doesn’t cover every type of employee. For the purposes of workers compensation, an employee is defined as someone who performs services in exchange for wages at the direction of an employer.  This includes minors as well as non-citizens.

Some states give exemptions to employers that don’t have many employees. You can check the state’s mandatory coverage laws to find out whether you’re eligible for an exemption due to the number of employees you have.

Several states will also exempt family members working for a business owner. Immediate family like parents, spouses, and children, may be exempt from coverage if they’re not legally considered employees.

Other potential exemptions include:

·         business owners

·         volunteers

·         independent contractors

·         farmers and farmhands

·         railroad employees

·         casual workers

·         employees of private homes (such as housekeepers)

·         commission-only employees

If they don’t have employees who aren’t owners, the majority of states don’t require sole proprietors and partnerships to purchase workers comp insurance. Business owners can opt to self-insure.

There are Some small businesses have tried to classify their employees as independent contractors by having them sign a 1099 form. In this way, they believe they can avoid having to purchase insurance. However, if the state or the IRS becomes aware of this, the business can face both tax penalties and criminal liability.

Are Your Employees Covered?

Do you have workers comp insurance? If not it’s something you should look into right way. Most states require employers to purchase insurance that protects their employees in the case of workplace injury or illness. Depending on the state, where to purchase and what’s required will vary.

Remember that not having workers compensation doesn’t exempt you from compensating employees who are injured or fall ill as a result of their job. Instead, you’ll have to pay those damages out of your pocket–which could be enough to cause serious financial trouble. 

If you don’t fall under one of the few exemptions for your state, it’s time to protect your workers. Check out our online quoting tool to get started.

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