workers comp for small business

clock April 16, 2021

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Workers’ Comp for Small Business: Do You Need It For 3 Employees?

Small businesses have it rough, especially when they begin to operate. Although there are more than 30 million small businesses in America, only a fraction remain open and profitable. 

Marketing and customers are not the only things small businesses need to worry about. Their employees are just as important. When you only have a few workers you may wonder if things like benefits are good.

Then there is workers’ comp for small businesses. Should you get workers’ comp with so few workers? Are there cons if you decide against it? Keep reading to get answers. 

Weighing the Worth: Workers’ Comp for Small Businesses

When you have any business one of your main concerns is budgeting. Small businesses have to do this more carefully compared to large businesses. Expenses are one thing businesses want to reduce as much as possible. 

Small businesses may think workers’ comp is an unnecessary expense because they don’t have enough workers. Maybe you have a decent amount of workers but may assume workers’ compensation is not a good idea if they work part-time. 

Rather than assume whether or not you can get away with excluding workers’ comp, you need to be sure to check the requirements in your state. For example, in Florida, if your business has fewer than four employees, you are exempt from needing workers’ comp. 

The only exception to this rule is if your business is in the construction industry. Small businesses in construction must carry workers’ comp for all employees as well as contractors. Aside from that, you do not need to provide coverage for independent contractors. 

Sole proprietors and partners are also excluded from requiring workers’ comp. They have the choice in electing for coverage.

If you have part-time workers, the same rules apply. So long as you have 4 employees, you must have workers’ comp the same way you need for full-time workers. 

Penalties Associated With Not Having Workers’ Comp

Small businesses that have three workers or less at your small business, you’re off the hook for requiring workers’ compensation coverage. Still, you may want to weigh if doing this is best in mind. 

If you exclude it, you may be liable for the costs of a claim related to workers’ compensation. This means you will have to cover medical bills, lost wages, recovery costs, and more in the event you have a worker who injures themselves. 

In cases of death, workers’ compensation can cover as much as $7,500 in funeral costs. It also can provide benefits to an employee’s family with a limit of $150,000. Overall, opting for workers’ comp means you reduce the risk of expensive lawsuits. 

Not having workers’ comp during a worker injury also means your small business is subject to a stop-work order. This means you cannot resume your business until you pay penalty fees and comply with law rules.

The fee may be equal to or more than twice the premium. Failing to comply with a work-stop order may result in criminal charges.

Statute of Limitations 

There is a statute of limitation for workers’ compensation which is in place to protect businesses against employees who file long after an injury. In the US, the statute of limitations is two years. 

There are certain exemptions and you may still be liable to provide compensation if the injured worker is mentally incompetent or a minor.

Calculating Workers’ Comp for Your Small Business

Workers’ comp insurance works for small businesses, even those who have a tight budget. The best way to figure out what type of insurance works for you is by calculating your total employee payroll. 

The premium you pay depends largely on employee payroll. It also includes the type of work the employees you hire perform. 

You must collect the name of your employees when starting your coverage plan and their annual wages. Include their position and a brief description of what their title entails.

You want to be as accurate as possible when you are making your projected payroll for your employees. The exact amount is audited at the end of the year on your policy. You will receive a credit or debit depending on the circumstance. 

Workers’ compensation insurance also requires classification codes (or class codes. They are 4 digit codes every state uses to help categorize workers. Every classification code has a specific rate linked with it. 

These codes are another thing workers’ comp insurers use to estimate the overall cost of coverage. Mixing up class codes can cost you. You’re in a better position when you work with workers’ comp insurance agents who can help you. 

As with any other insurance, you have better control of prices when you shop around too. This will ensure you will find a workers’ comp policy at the most competitive rate. 

It can be confusing to verify that you understand and adhere to your state’s rules regarding workers’ compensation. This is more of a reason you may want to work with an insurance agent who can help you make sure you are getting an affordable policy that falls within your state’s rules regarding workers’ comp. 

Purchasing a Workers’ Comp Plan That’s Right for Your Small Business

There is value in getting workers’ comp for small businesses. You do not need to have a large number of employees as a prerequisite. While it’s true, workers’ comp is not required if you have three workers or less, you need to decide if it’s worth the risk.

Remember that things happen. Accidents happen. You want to be prepared for such events. Workers’ comp will help shield your small business from complications that occur with injury on the job.

If you need help deciding on the right workers’ comp plan for your small business, start a quick quote online. You can also contact us for help at 855-852-0128. 

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