Workers’ Comp for Small Business Owners

LAST UPDATED: June 29, 2022

Owning your own business may be the American dream but it’s certainly one that comes at a cost. After you’ve worked hard to create your business, there are further ongoing steps you need to take to protect that dream you’ve built. One such step is paying for workers’ compensation insurance, also known as workers’ comp.

What is workers’ comp and how does it affect small business owners? These are the essentials you need to know.

What Is Workers’ Comp?

Workers’ comp is an insurance product that protects businesses in the case of an employee’s on-the-job injury. If any of your employees are injured or become ill because of their work, the insurance policy pays them for their medical bills as well as lost wages while they recover.

There are generally two types of workers’ comp: a state-administered insurance policy or a private insurance policy. Some businesses combine both; they get some coverage from the state’s policy and then purchase supplemental insurance from a private insurance carrier.

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Does My Small Business Need Workers’ Comp Insurance?

The short answer to this question is always “yes.”

Nearly every state in the US requires employers with even one employee to carry workers’ compensation insurance at or above a set minimum amount of coverage. However, the requirements vary from state to state and these requirements are constantly changing as well.

If your business is legally required to carry workers’ compensation insurance, failing to do so could cost you heavily in the form of fees and penalties. Regardless of legal requirements, though, skipping workers’ comp also leaves you vulnerable to thousands in medical bills and lost wages if and when an employee is injured.

Either way, while workers’ comp insurance is an added expense, it’s one that most small businesses cannot afford to miss.

What Factors Affect My Workers’ Compensation?

Each business’s workers’ comp premiums and coverage are different, and there are several factors that will affect your costs and your benefits.

Your State

Much like auto insurance, most states in the US have a set minimum amount of workers’ comp coverage that is required. This will vary by the state and it may vary within the state too based on different criteria and requirements.

Your Course of Business

In some cases, businesses that are at high risk for employee injury may be required to have more workers’ comp coverage. Even if you aren’t required to, it could be a wise choice.

For example, a manufacturing plant with heavy machinery is far more likely to cause serious employee injuries than an ad agency with desk-based employees. Keep in mind that while high-risk businesses may need more coverage, that coverage may also cost more because of the risk involved.

Your Safety History

As with any other type of insurance, your premiums are partially based on the level of risk you present. The more times employees submit workers’ comp claims and win their cases, the more risk you present to the insurance company. This leads to higher premiums.

How Does Workers’ Comp Affect My Payroll?

It’s important to note that workers’ compensation insurance is entirely paid for by the employer. You do not deduct any costs for workers’ comp from your employees’ paychecks. In other words, under normal circumstances, it doesn’t affect your payroll.

If an employee is off work because of an on-the-job injury, note that the insurance policy will pay for their wages. You do not continue processing their payroll until they return to work.

Does Workers’ Compensation Prevent Employees from Suing Employers?

This is an important question to note because it’s often misunderstood. Generally, the purpose of workers’ comp is to compensate employees for on-the-job injuries rather than requiring them to sue you for compensation. It’s a win-win: they don’t need to wait until a lengthy lawsuit completes in order to be reimbursed and you don’t need to pay them out of your pocket.

Because of this, employees cannot sue you for typical, accidental on-the-job injuries. There are circumstances in which they can still sue you beyond the workers’ comp they’ve collected, though.

The first exception is if you intentionally caused the injury, such as if you assaulted the employee at work. The second exception is if the injury was sustained while they worked outside the usual scope of the job. For instance, you required your administrative assistant to go help out in your production plant on equipment they weren’t trained to use and they were injured in the process.

In these cases, the employee is within their rights to sue you.

Getting Your Workers’ Comp Ducks in a Row

Workers’ compensation insurance is a necessary purchase for any business. It may seem pricey but it’s nothing compared to the cost of a serious employee injury requiring lifelong medical care. Use the guidelines above as a first step toward better protecting the business you’ve worked hard to build.

If you are a new business owner, Zeffry offers help in getting your business enrolled in a worker’s comp and also getting your payroll started as soon as possible. Get started now!