Workers’ compensation insurance, commonly referred to as “workers’ comp,” is a form of employer paid insurance designed to provide financial support to employees who suffer a work-related injury or illness while reducing the business owner’s liability. If an employer carries workers’ compensation insurance, the employee, in most cases, can only bring a claim through the workers’ compensation system. An exception may be when the employer’s intentional actions resulted in the employee’s injury or illness.
Workers’ compensation is not just a good business practice, it is often a legal requirement. It is a state government-mandated program, but the laws vary by state. However, in most cases, businesses with employees must carry workers’ compensation insurance. Failure to comply can result in significant penalties, including fines, criminal charges, or being ordered to stop all work your company is performing.
When an employee is injured on the job, he or she must report the injury to his or her employer as soon as possible. The employer then files a claim with their workers’ compensation insurance provider. The insurer evaluates the claim and, if approved, provides the necessary benefits to the employee. These benefits can include partial wage replacement, temporary and permanent disability, medical cost reimbursement, rehabilitation and occupational therapy, and compensation to beneficiaries if the worker passes away from their work-related injury or illness.
One common misconception among business owners about workers’ comp is that it’s only necessary for large companies. Depending on the state, even businesses with just one or two employees may be required to have coverage. Another myth is that workers’ comp only applies to severe injuries. The truth is that it covers a wide range of incidents, from minor sprains to serious accidents. It’s better to have coverage for all potential risks than to assume certain injuries won’t happen.
In order to ensure compliance with workers’ comp laws, you first need to understand your state’s requirements. Each state has its own rules regarding who needs workers’ compensation and what’s covered. Research your state’s laws or consult with an insurance professional to ensure you meet all legal obligations. In addition, workers’ comp laws and regulations can and do change, so it is essential to stay informed by regularly reviewing both your policy and state requirements.
Next, work with a reputable insurance provider. They can help you find the right policy for your business size and industry. Make sure to review the policy details carefully, including coverage limits and exclusions, to understand what is and isn’t covered. If your business has employees in multiple states permanently, you will need to get a workers’ comp policy that provides coverage in each state. In that case, make sure to choose an insurance carrier that is licensed to sell coverage in all the states where your business operates.
Finally, establish clear workplace procedures for reporting injuries. Employees should know how to report an incident and who to contact. Prompt reporting and documentation can help streamline the claims process and avoid unnecessary complications.
Workers’ comp premiums are calculated based on employee classification, job duties, and the rate assigned by the state to that classification, based on industry. Additional factors could affect the rate such as the size of the employer’s payroll and their claims experience.
A primary concern for a business owner is the cost of workers’ compensation insurance. While it’s a necessary expense, there are ways to manage and even reduce costs over time. Start by prioritizing workplace safety. Regular training sessions, clear safety protocols, and proper equipment maintenance can significantly reduce the risk of accidents. Fewer accidents mean fewer claims, which can help keep your insurance premiums stable.
You also can explore group insurance options. Some industry associations offer discounted rates for members, which can be a cost-effective way to get the coverage you need. Additionally, maintaining a good relationship with your insurer and demonstrating a commitment to safety may qualify you for discounts or lower rates.
While workers’ compensation often is discussed in terms of legal and financial requirements, it is important to remember the human aspect. A work-related injury or illness can be life-altering for both the employee and his or her family. As an employer, taking the time to understand and implement workers’ comp insurance properly is one of the best decisions you can make for your business and your employees.
Dana Rogers is the controller for the National Wood Flooring Association (NWFA) in St. Louis. She can be reached at dana.rogers@nwfa.org.
