What is Workers’ Comp and Do I Need It?

You just registered your business with your state. Congratulations! Now it’s official. Cue the confetti! Getting your business off the ground is definitely cause for celebration. So have you thought about workers’ compensation yet? 

Wait. Before you put away the confetti, there are some things you need to know. 

You’re likely familiar with the term “workers’ compensation” or simply, “workers’ comp”—as we’ll refer to it in this blog. We also know the terms workman’s comp and workman’s compensation. If you haven’t used it yourself, it might feel difficult to understand exactly what the coverage is and why you need it. 

We’re here to break down the specifics and simplify what workers’ comp is and whether you need it in your business. 

Workers’ comp defined.

First, let’s define what workers’ comp is. It’s coverage to protect you and your employees in case of a work-related injury or illness. And what a work-related injury or illness is may not be so obvious, so let’s define that too. Your employee could get hurt, for example, tripping over a misplaced electrical cord in the office. They could also get hurt in a car accident while commuting to a client meeting. These injuries are not as obvious as accidents that may occur on a construction site, but they still qualify as work-related injuries.

Two examples of work-related illnesses that could be covered under workers’ comp would be your employee developing carpal tunnel syndrome because of extended time typing without proper ergonomics installed to support the physical impact of their work. Another example is more obvious—if your employee works in a factory and is exposed to hazardous materials, there’s a risk of exposure, contamination, and a resulting illness that may require your employee to be out of work for an extended period. 

What a workplace injury or illness could stem from isn’t always clear, so it’s essential to get workers’ comp coverage if you have even the slightest feeling that you may need it in your workplace. We all know that accidents and emergencies happen no matter how well we work to prevent them, so it’s best to be fully prepared and ready.

If you choose not to carry workers’ comp coverage, it’s critical to have enough in savings to cover any losses you may incur because of an employee’s injury and any legal fees that come as a result. It’s difficult to know exactly how much to save since you don’t know what may happen or how much it will cost, but with medical expenses that can skyrocket into the hundreds of thousands of dollars—we strongly recommend having workers’ comp coverage. Taking on these costs without the proper coverage can devastate a small business.

What is workers’ comp insurance?

To put it simply, workers’ comp is a type of insurance that allows employees access to medical benefits and covers lost wages in case of a job-related injury, illness, or death. Sounds dismal, but it’s important to have those types of things covered in your business—like really important.

With workers’ comp coverage, your business and legal fees are also covered if an employee sues you. (Also pretty important, right?) An employee could claim negligence as the reason for their injury or illness. You don’t want to be left scrambling to cover the legal fees to defend your business from the suit.

Sometimes workers’ comp coverage will not kick in, and it’s critical we address these scenarios as well.

Workers’ comp will not pay for an employee’s medical bills or legal fees if they were acting outside of your business’ policy. So if your employee, for example, was not following your standard operating procedure to complete a task and they end up with an injury, related medical costs may not qualify for coverage. An employee’s claim may also be denied if they were injured during a commute to or from work to their residence. Or, if they were under the influence of any type of alcohol or illegal substance at the time of injury. Any of these reasons may result in an employee’s claim for coverage being denied.

What to expect if a workers’ comp claim is filed. 

If you find yourself in a situation where workers’ comp kicks in for an injured employee, you can expect that the coverage will pay for immediate medical care, such as hospital visits, surgeries, medication, and doctor visits. If a work-related injury requires further treatment, your workers’ comp benefits include therapies to enable the employee to get back to work safely and in good physical and mental condition. 

Some work-related injuries and illnesses may require an employee to be out of work for an extended period. In this case, workers’ comp benefits cover the costs for physical and other therapies. 

The coverage also includes vocational rehabilitation to place your employee in a new line of work and, in the instance, your employee can no longer perform their previous job.

If your employee is no longer capable of performing the work they did before the injury or illness, they qualify for a disability benefit under workers’ comp coverage. This type of benefit kicks in whether the disability is temporary or permanent. 

In the more unfortunate event that an employee dies because of a work-related injury or illness, the employee’s family can expect to receive financial support for the wages lost as well as expenses, such as funeral costs. 

If any of the above scenarios happen, what should you do?

After your employee gets immediate medical attention for their injury or illness, note:

• The date the accident occurred.
  
• The time of the accident.
  
• The cause of the accident.
  

It’s best to report the injury as soon as it happens and not days after the fact. Start the claims process as soon as possible. 

Keep in mind that this is just a starting place. You’ll receive additional guidance on next steps from your insurance carrier. 

Do you need workers’ comp insurance for your small business? 

Maybe.

In most states across the U.S. workers’ comp is mandatory. 

Each state’s requirements are generally based on how many employees a business has. If you’re a freelancer with no employees, you may qualify for an exemption from carrying workers’ comp insurance in your state. And if you’re an employee-owner of the business with no additional employees, you may also qualify for an exemption.

The best way to know whether your small business should carry workers’ comp coverage is to check with your state.

One way to determine whether or not you need to carry workers’ comp is to look up “[your state] + workers’ compensation” in your search engine. The first page of results will show your state’s Department of Labor and Employment, and that’s where you want to go for the latest updates, rules, and regulations on workers’ comp in your state. 

Common determining factors for whether a business must carry workers’ comp coverage include the type of service or product your business provides and the classification of employees.

If, after reviewing the criteria for exemption, you determine you are, in fact, exempt from carrying workers’ comp in your state, you might carry the coverage, anyway. Why? Because an employee can still get hurt on the job, and you may not want (or be prepared) to pay out of pocket for employees’ medical bills. You’re not just making sure that employees are covered in case of a work-related injury or illness or that you’re covered for legal fees that may result from that—you’re getting peace of mind. Protecting your assets is essential for businesses of any size, and carrying workers’ comp is one way to do that.

Is workers’ compensation coverage expensive?

You may also wonder how much workers’ comp insurance costs. With all the benefits of having the coverage, it must be expensive, right?

Well, it depends.

The workers’ comp premiums are based on different factors. When quoting your coverage, carriers consider the type of industry you’re in and the type of work your employees do on a day-to-day basis, your location, and past claims. 

If you’re in an industry with a relatively safe environment, such as a retail store, you could pay a few hundred dollars per year in premiums. If you’re in a high-risk industry, such as construction or manufacturing, the cost of your premium could jump into the thousands. And no matter how much you pay, remember that the peace of mind you get from carrying this coverage is part of the long game in business. It’s always better to be covered just in case, and you’ll be grateful for the coverage if you need it. 

You got workers’ comp coverage. Now what?

Now that we’ve gotten workers’ comp off your list, enjoy the peace of mind of being protected if something unexpected happens to your employees. We hope nothing ever happens and that you and your employees stay healthy in and out of the workplace, but it’s good to stay covered for potential accidents, just in case.

Cue the confetti! You’ve got another thing checked off the list. That’s a big deal, and totally worth celebrating!

And if you’re not sure what to do next, don’t worry. We’re here and we get it—running a business the right way can be a little confusing. We’re here to help and answer your questions!