Workers’ compensation is best known for providing insurance coverage against workplace injuries, but equally importantly, it also protects business owners against lawsuits from injured employees.
A mandatory coverage for employers in most states, workers' comp coverage pays for employees’ medical bills, medication and rehabilitation costs while shielding employers from litigation being filed by injured workers.
By providing a mandated remedy for workplace injuries, workers' compensation provides a cost-effective way to protect workers, reduce costs for employers, and lowering uncertainty for all.
Workers' comp provides the following general benefits:
- Payment for injured employee's medical treatment
- Partial replacement of lost wages
- Employer protection against litigation and defense costs
Optional coverage includes financial assistance for family members and reimbursement for funeral expenses if an employee dies in a workplace accident.
Business owners may also be able to purchase insurance to cover legal expenses should an employee make a false claim of a workplace illness or injury.
Small businesses typically purchase workers' comp by:
- Buying a policy from a private insurer
- Joining other small businesses to buy coverage through an insurance pool
- Buying coverage from the state in which your business is located
Some states allow small businesses to self-insure their workers' comp insurance requirements, if a company can demonstrate the financial ability to pay any claims from existing funds.
Workers' compensation requirements and premium costs vary by state and type of business. Some states, for instance, require workers' comp coverage once a small business hires its first non-family member employee. Other states have a higher employee threshold, or base workers' comp requirements on payroll size. Most states have strict penalties for failing to purchase workers’ compensation insurance.
Since workers' comp premiums are based on industry risk as well as expected payroll size, small businesses that operate in more than one state or use independent contractors should explore their insurance options carefully. An experienced agent or broker can help you arrange the most effective coverage for your needs.