Worker’s compensation is one of the most critical parts of any business plan. This insurance will protect both you and your employees and is not only highly recommended—it’s mandatory in most states.
Despite its benefits to employers, many struggle with signing up. While the protection is straightforward, knowing whether a business needs to sign up and where to get coverage can be tricky. This is because every state has its own workers’ compensation laws, and regulations can vary dramatically from state to state.
There are several frequently asked questions about workers’ compensation insurance, including:
What Is Workers’ Compensation?
Workers’ compensation is a form of liability insurance that covers an employee’s costs in the event of an on-the-job injury. This can be direct injuries, such as a fall that requires a trip to the hospital; an indirect injury like a repetitive stress injury from lifting boxes; or mental health care for a traumatic event like an in-store robbery.
Workers’ compensation insurance is an essential part of covering your business because it eliminates several points of danger for your finances. By paying upfront for insurance, your employee’s costs are covered. In most policies, if the employee accepts a workers’ compensation payout, they give up their ability to sue, and you’re protected from liability. Workers’ compensation typically covers all claims except those linked to negligence either on the employee or employer’s part.
Who Needs Coverage?
Is your business covered under your state’s workers’ compensation law? You should probably assume you are unless you fall under a series of limited circumstances. The workers’ compensation laws vary by state, but typically, any business that employs three or more people will need coverage, as will any business that has one or more people working more than 35 hours a week. Some states have even stricter regulations, although some, like Alabama, only require businesses with five or more workers to be covered.
So who doesn’t need coverage? This is usually limited to businesses run by sole proprietors and take all the liability on themselves. Certain industries like agriculture are often exempt from standard workers’ comp laws, although they may have separate regulations that govern their coverage.
Where Do I Find Coverage?
Much like laws for coverage, how you obtain coverage will vary by state. The most common coverage method is through a private insurer, similar to how you obtain business insurance. The rate you pay is determined by factors, including your business’s risk level, location, and history of past claims.
Some states offer the option to purchase workers’ comp through a state fund. While in most states, this is an option, four states—Ohio, Washington, North Dakota, and Wyoming—are monopolistic and require all businesses to use the state fund. Many states that don’t have an official state fund still offer an Insurer of Last Resort for businesses that can’t get insurance anywhere else.
Another option for some businesses is self-insurance. This when you attest that you can cover any claims personally. You’re taking on a lot more liability, and getting certified as a self-insurer will require you to undergo a more involved look at your finances by state authorities.
How Do I File a Claim?
If an injury happens on-site or an employee informs you of medical costs related to the job, it’s important to act quickly and document everything with your insurance provider. Laws vary, but each state has a statute of limitations for both the employee filing a claim and the employer reporting it to the agency. For the employee, it usually ranges from 30 to 60 days but can be less. Filing the actual claim has a buffer zone of at least one year in most states, two in some, but there are exceptions. Alaska has the shortest limit, with a total of 30 days for the entire process.
What Happens If I Don’t Have Workers’ Comp?
A business without workers’ comp insurance opens itself up to trouble in more ways than one. First, you could find yourself personally liable for all costs if an employee is injured on-site, which could easily bankrupt a new business. You would be responsible for hefty legal fees even if found blameless.
In most states, you would also be liable for fines for violating the state’s workers’ compensation laws. A first offense may not bring a massive fine, but they add up quickly, and a business that refuses to obtain workers’ compensation will find itself bankrupt very quickly. The risks are not worth and financial savings in the long run.
Every business’ situation is different. Having a workers’ compensation agency in your corner can help address some of these issues before you run into challenges. Finding the right provider gives your building the safety net it needs for lasting success.