When your employees arrive for work each day, the hope is that they’ll put in their full eight hours or so without an incident or injury. But accidents do happen, despite safety measures small businesses take to keep their team safe.
The question is, what happens to a business when an employee is injured on the job or experiences a job-related injury — such as developing carpal tunnel syndrome? Who is responsible for covering the medical expenses and other costs associated with the injury? In many cases, the answer is the employer — aka, your business.
It doesn’t matter if your company employs two people, 50 people or 1000 people — workers’ compensation insurance is a must. The majority of states in the U.S. require small businesses to have some form of workers’ compensation insurance.
Look at the Numbers: Statistics on Workplace Accidents and Injuries
How common are workplace or workplace related injuries or illnesses? The good news is that injuries and illnesses don’t happen all that often. The not-so-good news is that they do happen.
According to data from the Bureau of Labor Statistics, in 2016 — the most recent year that data is available — there were around 2.9 million non-fatal workplace injuries or illnesses.
However, some industries are more likely to have reported incidents or injuries than others. For example, in 2016, there were about five reported injuries or illness for every 100 full-time workers in the manufacturing industry. Meanwhile, there were just 0.6 reported injuries or illnesses for every 100 full-time workers in the financial and insurance industry. Although the number of injuries and illnesses in the financial and insurance industry was the lowest out of all private sector industries, there was an uptick in the number from 2015 to 2016.
Workplace injury and accident statistics also take into account how many days away from work a person spends as a result of the workplace injury. The number of incidents that led to days away from work was 892,270 in 2016. The median number of days away from work was eight in 2016.
The two industries that had the highest rates of injuries resulting in days away from work were manufacturing and retail — each had more than 100,000 cases.
Although the number of injuries and illnesses related to the workplace might be low, they do happen. Workers’ compensation insurance helps to protect workers and businesses in the event an injury or illness occurs.
Understanding Workers Compensation
Who is responsible for making sure employees stay safe on the job? The business that employs them.
It’s important to understand that “safety” means more than just protecting workers from slips, falls and other injuries that can occur on a job site or in an office. It also means protecting employees from conditions that can lead to illness or chronic injury down the line.
For example, it can mean making sure employees have workspaces that are ergonomically designed to reduce the risk of repetitive stress injuries. It also means making sure the air in a workplace is safe to breathe, as well as minimizing your staff’s exposure to toxins and hazardous chemicals.
Even when employers take all the precautions needed to reduce injury or illness, they can still occur. If a person ends up getting hurt at work or develops an illness or injury because of their job, it’s on the employer to cover the costs associated with that illness or injury.
It’s also worth mentioning that workers’ compensation covers injuries or illnesses that occur on the job or are workplace-related no matter whose fault the incident is.
Covering medical expenses and other costs related to a workplace injury can get very expensive, very quickly. Enter workers’ compensation insurance, which often covers the costs associated with a workplace injury or illness. Workers’ compensation insurance can also protect your small business if an injured or ill employee pursues a lawsuit.
Who Qualifies as a “Worker”?
One thing to consider when deciding whether your small business needs workers’ compensation insurance or not is whether or not your company employs any “workers.”
Generally speaking, a “worker” is a person employed by your company, rather than an independent contractor who occasionally performs work for or with your business. There are a few rules regarding who you can classify as an independent contractor and who is legally an employee. You can’t just declare that the people who work for you are independent contractors in an attempt to avoid workers’ compensation responsibilities.
A worker is someone who:
- Has an ongoing relationship with your business. For example, you expect them to report for work five days a week, from 9 am to 5 pm, and you hope that to continue indefinitely.
- Receives benefits from your company — such as health insurance, 401k or pension plan, vacation time.
- Uses your company’s equipment to perform the responsibilities of their job.
- Has taxes taken out of their paychecks by your company.
- Receives specific instructions on how their work should be performed by someone at your business.
- Is evaluated based on their job performance by your company.
State Laws Concerning Workers Compensation Insurance
Workers’ compensation insurance laws do vary by state, so your company’s location will affect what sort of coverage you need to purchase, as well as whether you need to have coverage at all. In all other states, the number of employees a business has influences whether the company needs a policy.
For example, in Pennsylvania, businesses that employ at least one person need to have workers’ compensation insurance. Even if that single employee works only twice a week, a small business based in Pennsylvania still needs coverage.
Many other states, including Ohio, Oregon and Oklahoma, also require employers with just one employee to have workers’ compensation insurance coverage. Some states, such as New York, specify that all companies with any number of employees need to have coverage.
A few other states have more lax or lenient coverage requirements. For example, in North Carolina, insurance coverage requirements don’t kick in until a business has at least three employees. The same is true in New Mexico. A few states, such as Missouri and Mississippi, don’t require small businesses to carry coverage unless they have five employees. However, these laws are also subject to change, so please review state laws for the most up-to-date requirements.
For the most part, sole proprietors — or businesses owned and operated by just one person — are exempt from coverage. The only state that requires a sole proprietor with no employees to purchase coverage is Arizona, although even that state offers the option to opt out.
Even if your business is exempt from purchasing coverage because of the specific laws of your state or the size of your company, it’s still usually a good idea to buy a policy. Workers’ compensation insurance doesn’t just protect your employees — it also protects your business. Even if the risk of someone getting injured is very low, the costs of that injury can be enough to put you out of business. Not having workers’ compensation insurance can also adversely affect your company’s relationship with customers or cause you to miss out on business opportunities.
Short-Term Disability and Long-Term Disability Insurance Compared to Workers Compensation Insurance
Occasionally, business owners will confuse workers’ compensation insurance with disability insurance. Although the two things have some similarities, they are very different from each other. For one thing, businesses aren’t required to have or offer disability insurance, but they are required — aside from the exceptions mentioned above — to have workers’ compensation insurance coverage.
If you’re required to have workers’ compensation insurance, does it also make sense to offer disability insurance to your employees? It depends on the specifics of your company. Take a look at the benefits of short-term and long-term disability coverage.
1. Short-Term Disability Benefits
Short-term disability insurance provides a person with a portion of their salary should they become unable to work for a period. The disability the person is experiencing shouldn’t have occurred as a result of an on-the-job or work-related injury. How long the insurance provides compensation varies based on the policy, but the terms are usually for anywhere from three months to one year. The maximum benefit period for a short-term disability policy is two years. Before a person is eligible to receive benefits, there’s usually a waiting period of 10 to 14 days.
A person can purchase a short-term disability insurance plan on their own, but the cost of doing so is usually very high. Group plans, offered through an employer, are usually considerably more affordable. Some businesses choose to offer short-term disability to their employees, either as a free benefit or on a cost-sharing basis. If the insurance is offered as part of a group plan, individuals won’t have to have a medical exam before signing up.
2. Long-Term Disability Benefits
Like short-term disability, long-term disability insurance is optional and designed to supply a person with a part of their salary if they are unable to work due to an illness or injury that isn’t work-related.
While short-term coverage kicks in quickly and expires after a maximum of two years, long-term disability insurance can have a waiting period that lasts for several months. The length of the coverage can be anywhere from a few years to the rest of the person’s life.
Your small business might choose to offer long-term disability insurance coverage to employees as a benefit, but it isn’t required.
How Workers Compensation Insurance Protects Your Small Business
The big benefit of having workers’ compensation insurance is that it protects your small business financially. Medical expenses from an injury can add up very quickly. If your company is responsible for paying those costs out of pocket, it can put a serious dent in your bottom line.
The other significant benefit of workers’ compensation insurance is that it protects your businesses from lawsuits from your employees. If an employee experiences a work-related injury or illness and your company has the appropriate workers’ compensation insurance coverage, the employee has effectively given up their right to sue.
How Workers Compensation Insurance Protects Your Employees
Workers’ compensation insurance isn’t just good for your business — it also offers a level of protection to your employees. While no one wants to entertain the idea of being injured at work or of becoming ill because of their job, these things do happen.
Having the appropriate coverage can help your employees feel confident that should anything happen to them on the job or because of the job, their medical expenses — and in some cases, their lost wages — will be covered.
Five Risks of Not Providing Workers Compensation Insurance
In many ways, the costs of not carrying workers’ compensation insurance are much higher for a small business than the costs of purchasing a policy. Five of the risks involved in not offering workers’ compensation insurance include the following.
1. Non-Compliance Penalties
Not purchasing a workers’ compensation insurance policy can end up costing you a pretty penny in fines and even criminal charges in some states.
For example, the state of Massachusetts charges a fine of $100 per day unntil the business purchases insurance. In Pennsylvania, the penalties for not having workers’ compensation insurance are even higher. There’s a chance of a criminal conviction, up to one year in prison and fines of $2500 per day.
Often, businesses found not to have an insurance policy in place are not allowed to continue to operate until a plan is purchased.
2. Potential Employee Lawsuits
Even if you don’t get “caught” not having a workers’ compensation insurance policy, there are still several risks. One of those risks is that being without coverage opens up the door to lawsuits. While your employees can’t sue your business if you have a policy available, they can if you go without coverage.
3. Financial Repercussions
Skipping a workers’ compensation insurance policy can also mean a drop in business for your company, especially if word gets out that you have no coverage. Customers and clients might consider your company too risky to work with and take their business elsewhere.
4. Drop in Employee Morale
Not having workers’ compensation insurance can send a message to your employees that your small business doesn’t particularly care about them or doesn’t want to take the steps to protect them in the event of a work-related injury. That can lead to a drop in morale and a decline in your team’s overall productivity.
5. Higher Employee Turnover
A drop in morale can, in turn, lead to higher rates of turnover, as people leave your business to find better employers. High turnover is expensive for your company, as it costs a lot to have to interview and hire new team members constantly.
Four Commonly Asked Questions About Workers Compensation Insurance for Small Business
In addition to details on coverage and risk factors, you may be wondering about one or more of these four other frequently asked questions about workers’ compensation insurance.
1. How Can You Manage Your Risks?
Purchasing a workers’ compensation policy is just one way your small business can manage and reduce risks. Another technique is to focus on ways to reduce accidents in the workplace, including any behaviors that can lead to injury when an employee is working off-site or traveling for their job. For example, your business can run a training program on traffic safety if your employees need to travel a lot for work.
2. How Do You Get Workers Compensation Insurance for Your Small Business?
Your small business can purchase a private workers’ compensation insurance policy from an insurance agency. To avoid any potential issues, it’s best to buy a policy before you hire any employees.
3. How Are Premiums Set for Workers Compensation?
Premiums for workers’ compensation are determined in part based on the risk of injury in your industry. For example, if your business is in the construction industry, you can expect to pay a higher premium compared to a business in the financial services industry. The amount of your payroll also influences the amount of your premium, as do other factors, whether your business has a history of making workers’ compensation claims.
4. How Much Does a Workers Compensation Policy Cost?
Since several variables can influence the cost of a workers’ compensation insurance policy, it’s difficult to say exactly how much a policy will cost. One thing that is important to know is that at the end of your policy’s term, the insurance company will likely audit your company’s payroll to see how it compared to the estimated payroll you supplied when you applied for the policy. If your actual payroll is less than the estimate, you might get a portion of the premium returned to your company. If your company had a larger than expected payroll, you might end up owing more at the end of the policy term.
Contact Gunn-Mowery, LLC, to Learn More About Workers Comp Insurance for Small Businesses
To get a better idea of how much workers’ compensation insurance will cost and ask questions about the policies available to you, contact Gunn-Mowery for a quote today.