Hiring employees gives your business the opportunity to grow, but it also complicates things. Not only do you have to worry about payroll taxes and health insurance, but you also have to worry about getting workers’ compensation insurance.
Here are four things you need to know about this unique type of insurance.
1. Workers’ Compensation Insurance is Required in Most States
Virtually every state requires businesses to have workers’ compensation insurance if they have employees. Many states still require this insurance even if the business only has one part-time employee. In other states, the business must have a certain number of employees before a workers’ comp policy is required.
Surprisingly, businesses are not required to have workers comp insurance in Texas. In New Jersey, businesses are required to have workers’ comp even if they only have one employee.
It’s important to understand your state laws to make sure you remain compliant. Insureon has a great guide on state laws, so you can easily find out whether or not you need coverage.
2. Policies Have Two Parts: Statutory Compensation and Employee Liability
Workers’ comp coverage is very different from your typical insurance policy. Policies have two parts: one that addresses statutory liabilities and one that relates to employer liability for injuries.
Statutory Compensation
Statutory compensation provides protections based on the state’s rules for compensating injured employees. The goal is to make sure that the employee is protected. To ensure full protection, all rehabilitative and medical expenses related to the injury or illness is covered in full.
This part of the policy also provides compensation for lost wages when the employee is unable to work.
Employer Liability Coverage
Employer liability coverage helps bridge the gap if an employer is sued for more than their policy’s limit.
While laws vary from state to state, employees can typically only sue their employers if the employer was negligent. For example, if a worker is injured while using a piece of equipment that was not properly maintained, the employer may be held liable for damages beyond the statutory compensation portion of the policy.
If that same employee was injured while using properly-maintained equipment he was trained to use, he cannot sue the employer in most cases.
3. There are Ways to Lower Premium Costs
Workers’ compensation is an added expense, which may put a strain on your cash flow.
The cost of your workers’ comp policy will depend on:
- The type of work your employees do
- Your payroll
- Your company’s claims history
Just like with any other type of insurance, there are ways to keep premiums low.
Making Safety a Priority
A safe work environment is less likely to lead to injuries. Putting safety first will not only lower your risk of workers’ comp claims, but can also lower your premiums on your insurance.
Give employees incentives for maintaining a safe workplace, and make sure that everyone is on the same page about safety procedures. Training may be required to ensure that all employees understand proper safety protocols.
Implementing a Wellness Program
Implement an employee wellness program with a focus on healthy habits and fitness. Healthy, fit employees are generally happier and less likely to get injured on the job.
Join a Trade Association or Affinity Group
Many local affinity groups and trade associations are sponsors of workers’ compensation insurance programs. Members often enjoy substantial savings on their premiums.
State Credits
If you’re shopping for a direct-written policy, inquire about any state credits that are available to lower your premiums. Many states offer credits to employers who maintain an alcohol- and drug-free workplace. Credits may also be available for certain safety and training programs.
4. Workers’ Comp Can Protect from Lawsuits
A workers’ compensation policy can help protect your business from lawsuits. As mentioned previously, most employees cannot sue an employer for injuries unless they can prove their employer was negligent. The reason they can’t sue is because the employer’s workers’ comp insurance should cover the cost of medical treatment, lost income and rehabilitative devices.
If an injured employee accepts a settlement from your workers’ compensation insurance, they typically waive their right to sue you for the injury (laws vary from state to state).
Even if your state doesn’t require this type of insurance, you may consider getting coverage just to protect yourself from lawsuits in the future.
