As a small-business owner, you probably already know a thing or two about Workers' Compensation Insurance – it's difficult to get far in the business world without picking up a few factoids about this policy. After all, it's your responsibility to provide employees with a safe work environment, which means you can be held responsible for their occupational injuries, too.
That's where Workers' Comp comes in. When employees suffer workplace accidents, injuries, or illnesses, this policy may offer coverage for:
- Medical expenses.
- Replacement wages.
- Disability benefits.
- Death benefits.
Those are the basics, but there are some other things about this policy you should know about. Let's round them up.
1. Workers' Comp coverage is mandated in most states.
Nearly every state has some form of Workers' Compensation Insurance laws on the books. In many states, employers are required to carry this policy even if they only have one part-time employee. Other states' mandates don't kick in until you hire a certain number of employees.
Either way, you should know your state's requirements so you can comply accordingly. Failure to carry coverage can result in serious fines and even jail time. Find a summary of your state's regulations in our guide "Workers' Compensation Laws by State."
2. Workers' Comp costs vary widely around the country.
Because each state decides the minimum amount of coverage employers must carry, Workers' Comp costs vary from state to state. (Learn more about that in "How Does Your State Rank on Workers' Comp Costs?") Our Workers' Compensation Insurance Quote Analysis can give you an idea about rate trends and factors that influence your premium.
3. You may cut Workers' Comp costs by classifying your workers correctly.
No one wants to pay more for coverage than they have to, but what many small-business owners may not realize is that worker classification codes have different prices attached to them. These codes denote occupational risk for each type of job. The riskier the job, the more it costs to insure that professional. You can look up these codes on the National Council on Compensation Insurance (NCCI) website.
Make sure you take the time to properly classify your employees so you don't end up paying more for your coverage. No sense in categorizing everyone at your construction business as carpenters (a higher risk profession) when you have a clerical staff (a lower risk profession), too.
4. Your Workers' Comp policy may keep lawsuits at bay.
A long, long time ago, the only way injured workers could receive compensation for their work injuries was to sue their employers. Unfortunately, the cards were often stacked against these workers – employers could essentially claim the worker had it coming by taking the job in the first place. It was a dark time (and you can read more about it in "A Brief (Non-Boring) History of Workers’ Compensation").
Fortunately, global attitudes started shifting in 1884, and eventually, the Workers' Comp system was developed. In exchange for occupational injury compensation, employees waived their right to sue employers. Today, this is known as the exclusive remedy rule.
In short, if an injured employee accepts a Workers' Compensation Insurance settlement, they forgo their right to sue you over the same injury (but the laws can vary from state to state).
5. Workplace safety also affects your Workers' Comp premium.
Workers' Comp premiums depend on several factors, namely…
- Your payroll.
- The type of work your employees do.
- Your claims history.
That last point is extremely important because part of the Workers' Comp premium calculation depends on your "experience modifier." This factor compares your actual losses to the expected losses for all members of your industry. As you might have guessed, the fewer claims you have, the lower your premiums will be.
The best way to cut down on claims? Make workplace safety a priority. Train employees on how to properly do their work and provide them with the necessary safety equipment. Discover more tips in "How Workplace Safety Can Save a Business Money."