If your small business has employees, chances are that you will be required to have workers’ compensation insurance polices for them. Workers’ compensation provides employees with wage replacement and medical benefits for work-related injuries in exchange for the relinquishment of certain rights to sue employers for negligence.
Workers’ compensation laws and requirements vary from state to state, with some states requiring the coverage if you have just one employee, while others may not require workers’ compensation coverage unless you have four or more employees. States also differ on their rules about coverage for part-time help and rules about reporting injuries.
How it works
Workers compensation insurance operates like any other insurance policy, insured businesses are charged premiums based on the assessed amount of risk their employees pose to the insurer. For example, a low-risk business such as a tax-preparation service will likely have lower premiums than more high-risk fields such as construction or an agricultural business.
Because workers’ comp is state-mandated, states offer government-run insurance programs to help employers obtain coverage, as many insurers may not be willing to offer coverage to small companies with few employees. In North Dakota, Ohio, Puerto Rico, the U.S. Virgin Islands, Washington, West Virginia, and Wyoming, workers’ compensation policies are available exclusively from state-run agencies.
The amount of workers’ compensation insurance you will have to buy also varies from state to state. In fact, states often use their workers’ comp laws as a competitive edge in luring business to their area as industries are often drawn to states that offer low workers’ compensation insurance requirements.
When purchasing workers’ compensation coverage, your inital rate will typically be based on your payroll and the average rates charged to other businesses in your industry. After maintaining coverage for a few years, insurers will typically begin offering discounts and you also may be able to renegotiate your premiums.
According to small business experts, state-run workers’ compensation insurance programs are often inefficent and costly. Experts recommend that larger companies acquire private coverage, however smaller companies may be forced to use state-run plans as insurance companies may not always extend coverage to companies with small employee pools.
Complying with the rules regarding workers’ compenation insurance is important, as fines, penalties and even criminal action may be levied against business owners who violate the law.
Businesses can keep their workers’ compensation insurance costs down by limiting workplace injuries. By following safety regulations set by state and federal authorities, as well as having good safety rules appropriate to your business in place, you can reduce workers’ compensation cost by curtailing the number of on-the-job injuries that occur at your business.
Having a competent HR staff can help you greatly in keeping workers’ comp costs down. Having a good corporate infrastructure and adequate staff to agressively manage workers’ comp claims can help keep insurance premiums down and lower the cost of resolving claims.
Also, if you’re in a state that offers private insurance solutions for workers’ comp insurance, you can get a better deal by diligently shopping around before purchasing a workers’ comp policy.