Frank, your employee, hurts his back when he lifts a heavy box without anyone’s assistance. This could go either one of two ways: he sues you and your business bank account is so depleted that you’ll have to close down. Or the worker’s compensation quote you received and accepted goes into effect.
Frank’s medical bills due to the injury are covered or partly covered, and wages he loses due to not working are paid back to him. In this case, everyone is happy and nobody is losing money.
What is Workers Compensation?
To put it simply, worker’s compensation is insurance for workplace risks. It is important to secure a worker’s compensation quote from a reputable company that will back up what it quotes. It is vital to have this insurance in place as coverage for your business so you avoid hefty fees, as most states require this insurance and potential lawsuits.
While it doesn’t cover the entirety of a medical bill, it does cover some things to assist the employee injured in a work injury and replace lost wages. When an employee is comfortable that any injury will be covered by worker’s compensation, they will forfeit the option to sue their employer.
PEO and Workers’ Comp
A PEO stands for Professional Employer Organization and differs from an employment agency in its business model. A PEO becomes a co-employer to another company. Many small and medium-sized businesses take this route to allow another company to take over the financial responsibilities of workers’ compensation, Human Resource services, payroll to include IRS and state reporting, employment benefits, and any other risk management.
The benefits of taking this route are that the small business is able to give their employees the benefits of a larger business that they don’t pay for. With the ability to outsource such financial responsibility, the turnover rate for the small business drops up to 15% and they are likely to grow between 7-9% more and are half as less likely to go out of business. When the small business grows, they potentially are able to offer better benefits on their own.
Not all of the benefits go to the small business. The big business that becomes the co-employer receives discounts for the number of employees under the workers’ compensation plan. Since a small business typically does not have a large bank account, this is an effective way to grow a business with employees while being able to offer them benefits that would typically be out of your budget. However, the PEO would have to be within the same industry.
Workers’ Compensation Quote
Does every business need workers’ compensation? Well, maybe not. It is, however, a good thing to have in the back pocket, so to speak. If your business is operated and ran by just yourself, it’s not necessary to have a workers’ compensation policy. Some businesses that you may work for may require you to carry it, so it is always a good idea to know what your options are.
By acquiring a quote, you know how much money it would cost to purchase a policy. It will also tell you if a PEO is something worth looking into if your bank account does not match the price. Operating a business without a policy in place can incur a fine of noncompliance up to $10,000. While the cost of the policy varies from state to state, the comparison falls in favor of having the policy instead of paying the fine or facing a lawsuit if an employee gets injured on the job.
The cost of a workers’ compensation policy depends on a variety of things such as payroll, number of employees, and location. It is hard to determine a definitive cost for a policy since the cost depends on a per $100 rate. For instance, in Texas, it cost about $.57 per $100 of covered payroll. Alaska might be the most expensive at $2.32.
In Alaska, the annual cost of a policy would be $4,826, compared to Texas at $1,186. This illustrates how crucial it is to seek out workers’ compensation quotes from several insurance companies because the cost of a policy varies from state to state, and each insurance company may be offering different rates at any given time.
Stand-Alone Versus Pay-As-You-Go
The greatest concern for most people with insurance is the premiums or monthly payments. There are currently two options for paying the premiums on workers’ comp insurance. The first is a stand-alone policy, which essentially means you pay one lump sum for your workers’ comp policy. This way has been the most common and seems to be the only way to pay. However, it leaves much money to be potentially wasted, as some employees don’t work as much as they usually do.
Then we have the pay-as-you-go system. This service allowed a company to be billed for their workers’ comp insurance by a calculation on each payroll cycle. This has been the standard practice for PEO situations and provides more accurate premium payments. This is accomplished by calculating the payroll hours of each employee like in the cost breakdown. If an employee didn’t work their full 40 hours, then the premium will reflect that.
Professional Employee Organizations, stand-alone policies, pay-as-you-go…there is much that accompanies this kind of insurance policy and it can seem confusing. This is why making sure you acquire a workers’ compensation quote from at least one company is essential for financial success. It will be needed because it’s required by most states, covers medical and part of lost wages from the injury at work, and employee lawsuits related to work injuries are covered by most policies.
For a free quote, you can contact us here to find an affordable rate.