Workers’ Comp Insurance for Your Business: What It Does and Why You Need It
Workers’ compensation is a type of insurance that protects businesses, their finances, and their employees if a worker becomes ill or injured as a result of their job. If one of your employees falls ill or gets hurt at work, they can file a claim for workers’ comp benefits with the insurance provider to cover the cost of medical care and recoup any lost wages. As a small business owner, this is one of the most important benefits you can offer your employees.
Generally, if you have hired any full- or part-time employees, you need to have workers’ comp insurance. Each state has its own rules and regulations dictating the type and amount of coverage you need, as well as when you need to purchase coverage. It can be costly, but even if you aren’t legally required to hold workers’ comp insurance, you may still want to invest in it for the sake of your employees and your business.
Benefits of Workers’ Compensation Insurance
Workers’ comp is a form of insurance, making it a simple but effective way to safeguard your organization. Even if you work in a relatively safe industry or environment, workers’ comp is too important for you to overlook. It offers an additional layer of protection against unforeseen and uncontrollable risks. If you don’t have workers’ comp insurance and one of your employees gets hurt while working, you may have to pay for their treatment or lost wages out of your own pocket. Depending on the nature of the incident, they may even have grounds to sue you.
Try to think of it in the same terms as auto insurance. You may be a safe, confident, and competent driver, but there are many factors outside your control that make driving dangerous. Between other drivers, unexpected issues with your car, and hazardous weather, there is a lot that can go wrong when you’re behind the wheel — the consequences of which can be harmful to your health, vehicle, and wallet. Car insurance doesn’t eliminate those inherent risks, but it does help you deal with the aftermath of an accident if something goes wrong.
Workers’ comp insurance does the same thing for your business. You can try to make your workplace as safe and healthy as possible, but even in the least dangerous environments, there’s always the chance that something will go wrong. With workers’ compensation, you and your business have more resources available to handle any incidents, from minor mishaps to major maladies.
Beyond this essential protection, workers’ comp insurance provides additional benefits for employees and employers alike:
For the Employee
First and foremost, workers’ comp insurance provides financial and medical protection to your employees. Your employees may struggle to cover any unexpected or sudden expenses to get the treatment they need. Delays in treatment could result in lasting health problems or permanent disability. The process of applying for workers’ comp is relatively straightforward, allowing employees to get financial assistance and the care they need as quickly as possible.
Beyond basic costs of care, workers’ comp can also cover any wages your employee misses during their recovery. If an employee dies as a result of their work, it can also provide death benefits to support their surviving family members. The amount an employee receives from workers’ comp will vary, as benefits are determined on a case-by-case basis.
Receiving workers’ comp does not affect your employees’ eligibility for additional legal help, financial assistance, or government benefits. If your employee sustains a short- or long-term disability due to their work, they can still pursue disability benefits. Further, your employees are free to enlist the help of an attorney if they have a complicated or unclear case. Essentially, workers’ comp is just one more useful tool your employees can use to protect and support themselves should the need arise.
For the Employer
Similarly, workers’ comp is legally and financially beneficial for your business. If anything happens to one of your employees, they forfeit the right to sue you if they claim workers’ comp benefits. Further, because it is a form of insurance, the insurance company will pay out their benefits — not you or your business.
Workers’ compensation insurance will also protect you from any legal action your employees decide to take. If your employee has a complex workers’ comp case or wants to pursue a settlement, they will work with the insurance company to come to a resolution. Keep in mind that the employee can still bring a personal injury suit against you if they believe your negligence or malice caused their condition.
As an employer, you still maintain some control over the claims process. You need to be familiar with the workers’ comp eligibility requirements to assist employees with their claims. You aren’t required to approve every claim that your workers make. In some circumstances, you don’t have to let them file a claim to begin with. It all depends on the case at hand.
Why You Need Workers’ Comp Insurance
More often than not, you’ll be legally required to carry workers’ comp insurance. The exact requirements for coverage vary from state to state, as well as the size and structure of your business. Texas is currently the only state that does not require workers’ comp insurance for most employers; all other states do have some kind of coverage requirement.
Typically, you need to purchase workers’ comp insurance once you hire your first full- or part-time employee. However, be sure to check your state’s requirements, as they can differ. Certain states, including Alabama, do not require insurance until you’ve hired five regular employees. Each state also has its own definition of the word “employee.” In some states, such as Colorado, anyone hired for pay is considered an employee, covering freelancers and contractors. In others, only those who are on your regular payroll are considered employees.
You may get punished if you do not follow your state’s workers’ comp laws. In California, for example, it is illegal to be uninsured. You could face hefty fines or jail time because failing to offer workers’ comp is a criminal offense in that state. New York and Pennsylvania have similarly harsh punishments for employers who fail or refuse to obtain insurance. Not all states have such rigid regulations, but paying a monthly insurance premium is better for your business than the financial and legal consequences of being uninsured.
Workers’ Comp Insurance for Self-Employed/Contract Workers
Each state has its own workers’ comp laws for entrepreneurs and people who are self-employed. Coverage may be optional if you’re self-employed and have no employees. Familiarize yourself with the workers’ comp requirements, as well as other business laws, in your area before beginning operations.
No matter the size or structure of your business, you may not need to get coverage for any freelancers — though it’s still a good idea to do so. Your company can be held liable for any injuries or illnesses contract workers sustain on the job, leaving you vulnerable to legal action. Freelancers face many obstacles in their work, including a lack of benefits, but offering workers’ comp can make both of your jobs that much easier.
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