When Do You Need Workers Compensation Insurance?
If you don’t have workers’ compensation insurance when you should, your business is at risk. You face significant penalties or fines. On the flip side, if you have insurance that you don’t need, that’s your hard-earned money down the drain—unless you’re in a high-risk industry.
Whether you’re a small business just starting out, or an established large business, you need to know when you need workers’ compensation insurance. Keep reading to find out.
What is Workers’ Compensation Insurance?
Workers’ compensation is a type of insurance you may be required to have by law. “Workers’ comp” is a way for employers to protect themselves from costly lawsuits from injured employees or their family members in case of an injury.
Specifically, workers’ compensation covers medical costs and a percentage of lost wages if one of your employees gets injured or becomes sick from working in your business. It also covers ongoing care costs, disability benefits, funerals, and fatality costs.
Workers’ comp laws Depend on your State
Workers’ compensation insurance for full-time employees is required by law in most states. Every state sets its own laws regarding who should carry workers compensation insurance, how much insurance is required, how claims are handled, and more. Some states have a minimum number of employees you need before you need to get insurance. Other states don’t require certain industries to be insured.
If you have full-time employees, it’s likely you need workers’ compensation insurance. However, in some states, the insurance will be required to cover part-time and seasonal employees, too. Even if you only have one employee, that employee must be covered. Be aware of your state’s laws, because they’re different from the next state over.
When do you need Workers’ Compensation Insurance?
Most states mandate that you get workers’ compensation insurance for an employee as soon as you hire them. Even if it is not required, it is highly recommended that you make sure your workers are insured. Don’t procrastinate when it comes to purchasing workers’ comp.
What About Independent Contractors?
If you’re hiring out independent contractors, generally, you will not be required to insure the contractors. If the job is particularly risky, you may require that your independent contractor have their own insurance. Be sure to include this in the contracts you create for your contractors.
However, be careful that your independent contractors aren’t considered employees. The states define employees with different sets of criteria. Typically, if you’re hiring someone and controlling how the work is performed, that person is an employee.
If you’re an independent contractor (and you have no employees), you’re typically not required to have workers compensation insurance. In some cases, the company you’re working for may require you to have it. Even though you’re not required, it’s smart to get the insurance anyway. That way, you’re covered if you ever suffer an accident.
How much does Workers’ Compensation Insurance cost?
Every state has a baseline cost of workers’ compensation insurance. Other cost variants depend on these factors:
- Location
- Workplace risks
- Payroll
- Benefit levels
- Healthcare costs
- Regulations
- Number of employees
- Coverage limits
- Claims history
Since there are so many variables that factor into the cost of workers’ compensation insurance, you’ll need to approach multiple insurance companies and shop around. Compare rates before deciding which company and policy to move forward with.
If you don’t buy Workers’ Compensation Insurance
What could happen if you don’t buy workers’ compensation insurance for your employees? Here are the potential consequences:
- Administrative penalties, such as hefty fines
- Criminal charges
- Jail time
But what if workers’ compensation insurance isn’t required? Should you still purchase it?
In almost all cases, buying workplace compensation insurance is a much better deal than not buying it, and spending an average of $42,008 per incident. If you don’t buy the insurance, then you’re responsible for all the costs if one of your employees gets hurt or sick.
The costs alone prompt most employers to buy workers’ compensation insurance, even when they aren’t legally required to.
How to Keep Workers’ Comp Prices Down
Workers’ comp is an excellent investment for companies to avoid spending $40,000+ per accident down the line. Even so, how can you work to keep workers’ comp prices down? Here’s how:
- Train employees on proper safety protocols, inspecting machinery and the workplace for hazards, and how to use dangerous equipment. Training should be ongoing—not just one time.
- Provide the proper personal protective equipment (PPE). You’re required by law to provide this.
- Have an OSHA Lead whose job is to train employees and maintain safety in the workplace.
- Make sure your chemicals are properly labeled and stored, and that employees are trained on chemical hazards and how to read the labels.
How to Make a Claim
The process of making a workers’ comp claim varies from state to state, and even insurance company to insurance company.
However, most insurance companies have requirements that mandate an employee must report their accident soon after the event—typically within 30 to 90 days. There’s often also a time limit for when employers can report an injury to their insurance company.
Make sure you know the requirements of your insurance company, so you’re not scrambling at the last minute when an accident does happen.
Here are some general insights on the process of filing a claim:
- Help your injured and sick employees get immediate medical care.
- Educate your employees, and make sure they know to notify you of the accident as soon as possible.
- Contact your insurance company to file a claim. Depending on what state you’re in, you may need to also notify a workers’ comp state board.
- The insurance company reviews the claim and approves or denies coverage.
Knowing the state and company specifics of your claims process is key to help you prepare for when an accident happens.
Be Proactive
In summary – you need workers’ compensation insurance whenever you have employees on your payroll. Be proactive when it comes to protecting and insuring yourself, as well as your workers, against all possible risks involved in running a business.
If a worker gets injured and misses some time due to those injuries, you could pay a hefty fine if you don’t have workers’ compensation coverage on board. Or you could be responsible for over $40,000 out of your pocket. The consequences of not having workers’ compensation insurance are serious, even when it’s not required by law.
Having workers’ compensation insurance can provide safety nets for you so that if something does happen, you know that you won’t be personally liable for paying the medical bills and other costs.
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