The Complete Guide To Worker’s Compensation Insurance

The history of worker’s compensation is quite exciting and gritty, and we primarily have Germany to thank for our modern laws protecting worker’s rights. If you’re ever on Jeopardy or want to impress a date with your knowledge, you may be interested to learn that Chancellor Otto von Bismarck is credited as being the first to bring accident insurance to the masses. In America, the idea of insuring worker injuries has been around since 1911; it is widely held as the most successful social insurance program ever implemented nationwide.

Okay, maybe exciting and gritty weren’t the right words. But while the history isn’t particularly gripping, worker’s comp can be a bottom line issue for you and your small business. Do you need it? Probably. It’s legally mandated in 49 states. Do you want it? Yes! Protecting your employees and yourself is a win-win.

Read on to learn everything you need to know about worker’s compensation insurance.

What Is Worker’s Compensation Insurance?

Worker’s compensation insurance (or worker’s comp) is an insurance policy bought by a company to provide benefits to people who have been injured on the job. Worker’s compensation insurance pays medical bills and covers loss of income for an employee who is injured on the job, and it also provides lawsuit protection for the employer.   

It is a legal requirement for businesses to provide worker’s compensation in some capacity in 49 states. (Texas is the lone holdout. So, if you are a small business owner in Texas, worker’s compensation isn’t mandatory but you may want to consider protecting yourself with a policy anyway.) Each state’s full-time employee minimum requirement is different, so check state laws. 

Who Needs Worker’s Compensation Insurance?

If you have one employee, odds are you need worker’s compensation insurance. If you are a sole-proprietor with no employees or an independent contractor, you are exempt, but the moment you start employing others, you are legally on the hook for providing worker’s compensation insurance in most states. (Again, unless you live in Texas.)

Since state laws differ wildly on the level and delivery method of benefits, it’s best to check with someone familiar with the laws of your specific state as you start to move forward. Some states say one full-time employee is enough to warrant coverage and others say you can wait until you have three or four full-time employees.

What Worker’s Compensation Covers

If an employee or employees are injured on the job, they are entitled to worker’s compensation protection. Even if your workplace seems relatively safe, accidents can and do happen. Most worker’s compensation policies cover the following:

• Medical Bills: The accumulated medical costs related to the work injury.
• Missed Wages: If your employee has to miss work, worker’s comp can cover lost wages.
• Ongoing Care: If the accident or injury needs consistent medical care, that medical care is covered.
• Funeral Costs: Yes, in the devastating event that an employee loses his or her life at work, the policy covers the cost of interment.
• Illness: If something at work is causing an illness, covering the medical bills for that is also part of the policy.
• Repetitive Injury: An injury of the back or chronic issues of carpal tunnel can relate to this category. If the injury is caused by a repetitive action at work, medical care for that injury is covered.
• Disability: If the accident or injury has caused permanent disability to the employee, the policy will cover both medical bills and lost wages.

What Worker’s Compensation Doesn’t Cover

While worker’s comp policies cover many situations, not everything is covered. It’s important to understand what you still might need to cover with a different insurance policy:

• Commuting Accidents: Traveling to or from work is not covered under the worker’s compensation umbrella. Car accidents could be covered under a commercial auto policy or an employee’s personal car insurance policy. Traveling injuries aren’t a worker’s compensation claim.
• Voluntary Work Outings: If you don’t require your employees to be at an event, but they attend the event of their own volition, injuries that happen during the outing are not covered by worker’s compensation. For example, if a group of workers goes out to happy hour, that’s not a work event and worker’s compensation doesn’t apply. If the boss invites everyone for an optional hike during a work retreat and someone sprains an ankle, that’s on the employee too. Keyword: optional. If you make people do things as an employer and they hurt themselves? That’s on you.
• Injuries Due To Intoxication: Check with an experienced lawyer for details if the injured employee is found to be intoxicated while at work. Under most policies, intoxication negates the worker’s compensation benefits.
• Workplace Horseplay: Routine injuries and accidents are covered; however, if your employees are using equipment improperly or joking around and fall down, those antics aren’t going to net them worker’s compensation rights. (This also goes for any injury that an employee receives while committing a crime, too! Which is an interesting, but apparently important legal distinction. Crime doesn’t pay.)

How Worker’s Compensation Policies Work

If an employee is injured at work, they must report the accident to their boss and then seek medical attention. After the injury is disclosed, the employee will tell any medical professionals involved in their care that the injury or illness is work-related. The visit will be categorized as such when billed to insurance.

Once the employee has received medical attention or proof of ongoing medical intervention, he or she can start the claims process with your business’s insurance agency.  

Each state has a mandated window of time during which a claim can be filed, so employees should know the time restrictions regarding a claim. When the insurance company approves the claim, the employee will receive their benefits. Benefits often include:

• Reimbursement for medical expenses
• Rehabilitation costs
• Two-thirds wages for while they are absent from work

By paying into an insurance plan, your insurance company handles the claims and benefit pay-outs for you.

How Much Does A Worker’s Compensation Policy Cost?

Business insurance cost is often a priority for small business owners. Like most policies, the price of worker’s compensation is going to depend on your small business: its size, income, how many employees you have, etc. According to the leading insurers, you may pay as little as $19 a month or as high as $290 a month to insure your company. The average price of worker’s compensation insurance for a small business is $2000 annually. State guidelines differ, so it’s best to check with your state first before buying a policy to see how much coverage you might need. (For example, in Alabama you don’t need worker’s compensation insurance until you have four full-time employees. However, if you have an employee injured on the job and you aren’t insured, the costs could bankrupt your business.)

It’s safe to say that it’s more expensive to issue policies to businesses where the work is dangerous. A construction job will cost more to insure than a desk job, but that’s okay–being under-insured can be just as devastating as lacking insurance altogether. Industry classification and payroll make the biggest difference to that premium cost.

Sometimes work safety programs will lower premiums for businesses looking for a way to lower their insurance costs. Ask your insurance company if there are verified ways to save.

Where To Get Worker’s Compensation Insurance

Worker’s compensation insurance is available from most major insurance companies. Some companies, like Hiscox and Coverwallet, offer bundling between liability and worker’s compensation which is another way to save money. If you are currently insured, check with your agency to see about bundling plans. If you are just starting your search for business insurance, there are many agencies to choose from.

Once you’ve decided to take the leap to cover your business with necessary insurance, you can follow Merchant Maverick’s steps to getting business insurance.

Final Thoughts

Worker’s compensation might be mandatory (check those state laws) but there are no drawbacks to protecting your employees and yourself in the case of a work-related accident or injury. We have that great Otto von Bismarck (did you remember that for your Jeopardy question? I was rooting for you!) to thank for championing worker’s rights and reminding us that a business is only as strong as its employees.

So, what should you know about worker’s comp?

• It’s almost certainly mandatory
• Your business is stronger with worker protection
• Worker’s compensation might cover things you can’t think of or prepare for
• Not having worker’s compensation could cost you your business
• Small businesses with fewer risks will pay less money for policies

Protect the business and the people you love by looking into adding worker’s compensation insurance.