Workers’ Compensation Business: What Is It & Do You Need It For Your Business?
Workers’ compensation insurance is insurance that covers employers should an employee become injured on the job or experience a work-related illness. It pays lost wages, medical bills, and even litigation expenses if you’re ever sued. Workers’ compensation is required and governed by each state, except Texas, so rules vary. Costs also fluctuate based on the state your business is in, the industry, total payroll amount, and even claim history.
If you need workers’ compensation insurance that’s easy to purchase and manage, consider using Cirrus Payroll. We partner directly with AP Intego to provide pay-as-you-go workers’ compensation insurance that aligns with your payroll. Calculations are performed each period, so you don’t have to worry about huge swings throughout the year. Sign up for a free quote today.
Who Needs Workers’ Compensation Insurance
All businesses with employees should consider purchasing workers’ compensation insurance, but many states have thresholds that determine the minimum amount you can have before it’s required–three to four employees is common.
Specific industries also carry certain rules, i.e, agricultural companies can sometimes wait until they have six or more employees before purchasing workers’ comp. On that same note, businesses in high-risk industries, like construction, are sometimes required to carry coverage with just one employee.
There are circumstances in which businesses do not need workers’ comp. Exemptions can include when you hire:
- Family members: Family members don’t always have a consistent work schedule and might just drop in to help when needed. In this case, they’re not the average employee.
- Independent contractors: Contractors don’t receive the same protections as employees. Because they do the work independently, it’s their job to provide their own disability or accident insurance.
- Sole proprietors, LLC members, and partners: Depending on the state, one or all of these are excluded from the workers’ comp requirement. They can however choose to purchase coverage for themselves.
- No employees: Businesses without employees can wait until hiring before purchasing workers’ compensation insurance.
Workers’ Compensation Insurance Costs
Workers’ compensation costs vary significantly depending on several factors–employers typically pay $500+ annually per employee. Premiums are calculated based on the type of work your employees perform, your business’s claims history, and your total annual payroll amount.
If your company is in a high-risk industry, you can expect to pay a higher rate per employee, because the odds of an employee becoming hurt or ill on the job are greater. Also, businesses that have operated for a few years without facing any claims can receive more discounted rates than new businesses with no workers’ compensation insurance history.
The amount you pay is a specific rate per $100 of payroll you process. To find out how much workers’ compensation costs for your business will be, request a free quote.
How Workers’ Compensation Insurance Works
Once your employees are covered, you’ll need to continue staying abreast of safety in the workplace. If an employee is injured or becomes sick due to work conditions, it’s important to act quickly. There’s a limited amount of time allowed between when the incident occurred and when the claim process can be initiated. Waiting too long could result in a denial, which puts you at a higher risk for lawsuits.
Employers must work with the employee to secure the necessary paperwork and submit it in a timely manner. It’s also important to follow all state rules on how and where to report workplace injuries and illnesses.
Expenses That Workers’ Compensation Insurance Covers
Workers’ comp is designed to help both the employer and the employee. It prevents you from dealing with lawsuits or judgements by covering employee expenses that are related to the workplace incident. In the event that your worker files a workers’ comp claim and sues you, the insurance can cover related expenses on your behalf.
Workers’ compensation insurance covers the following:
- Medical bills: This can include medications, hospital stays, x-rays, recurring doctor visits, etc.
- Occupational rehabilitation: Sometimes, employees need extra support to prepare for returning to work after an injury. This might include physical therapy, mental health counselling if trauma is involved, and even speech therapy if there was a brain injury.
- Vocational retraining: If an employee is unable to return to their original position after a workplace accident, they may need to be trained for a different job.
- Legal expenses: If you need to pay an attorney, court fees, or other legal expenses related to the workplace incident, workers’ comp can cover it. Note however that when employees make claims to workers’ comp, they are generally not allowed to sue in court.
- Lost wages: Employees will receive a percentage of their regular earnings if covered under workers’ comp.
- Death benefits to the employee’s family: If the worker happens to die due to a workplace injury or illness, his or her family will receive a financial payout to compensate them for his lost income.
Expenses That Workers’ Compensation Insurance Does Not Cover
While workers’ comp does cover many different types of expenses, there are some that it may not, depending on the state. For instance, if the employee violated a workplace policy and consumed drugs on the job prior to the incident, their claim could be denied–especially if drug tests show a positive result.
Other expenses that workers’ comp policies may not cover are:
- Expenses resulting from intentional self-harm inflicted by the employee
- Injuries sustained while the employee was volunteering at work vs being on the clock
- Accidents that occur when the employee is violating a company policy
- Accidents that occur when the employee is breaking a law
Penalties for Not Carrying Workers’ Compensation Insurance
Failing to purchase workers’ comp insurance when your state requires you to can result in expensive penalties and even jail time. Some states charge hundreds of dollars each day that your employees work without being covered.
It’s important to get a firm understanding of your state workers’ comp requirements and the details surrounding your coverage options. It’s a required expense, but it protects the business and your employees in the long run. Compare costs, and opt for a pay-as-you-go plan to ensure you don’t have to play catch-up later.
Cirrus Payroll works with AP Intego to offer pay-as-you go worker’s comp that ties directly to your payroll expenses. You can automate your payroll process and ensure your workers’ comp payments are as accurate as possible, helping you to avoid paying extra money later. Sign up for a free quote.