Most states require workers’ compensation coverage, but there are a few exemptions. If your business isn’t required to have workers’ comp insurance, it may still be a good idea to carry an optional workers’ comp policy—read on to learn why.
Why workers’ comp insurance can be a big deal
Workers’ comp insurance protects employees if they get injured on the job, and protects businesses if employees file lawsuits pertaining to on-the-job injuries. Basically, medical bills, lost wages and legal expenses associated with on-the-job injuries are likely to be covered by workers’ comp.
Whether or not a business needs workers’ comp is determined on a state level by several factors, including how many employees there are and where they work, the business type—and sometimes, the industry. Most state workers’ comp laws require businesses with even a single employee on the payroll carry workers’ comp insurance, but sole proprietors with no employees are not required to have coverage. In a few states, the requirement for workers’ comp doesn’t kick in until there are a few more employees on the payroll.
Who needs workers’ comp insurance?
For those self-employed business owners that are not required by their state to carry workers’ comp insurance, an optional policy may feel like an unnecessary expense—but businesses can benefit from coverage even when it isn’t required:
- Independent contractors working with other businesses: Some businesses require contractors working for their company to carry independent contractor workers’ compensation insurance, so they can limit their own company’s liability.
- Self-employed business owners: Most health insurance policies won’t cover work-related illnesses and injuries, but workers’ comp policies are designed to help cover medical bills and lost wages.
- Businesses that operate in high-risk industries: Businesses in industries related to construction and transportation face more frequent injury and can purchase optional coverage so they won’t have to pay all work-related injury medical expenses out of pocket.
Operating without coverage can be risky business
Without workers’ comp coverage, how would your business handle the financial fall-out from a worksite accident which injured a worker? Would your business be able to handle the financial impact of a lawsuit filed by a worker who was seriously injured on the job? What if an employee lost a limb, became permanently disabled, or died from their job-related injuries?
Medical treatment and rehabilitation are often needed before injured employees can return to work. This can mean lost wages and large medical bills for the injured worker—a devastating combination for all parties involved.
Most businesses aren’t able to cover these kinds of expenses with their available cash flow, and those businesses facing workers’ comp claims without coverage may be liable for costs associated with the claim—regardless of state workers’ compensation coverage requirements—including medical treatment, rehabilitation, lost wages, and liability insurance for the business, should an injured employee file a lawsuit.
When comparing the cost of having a workers’ comp policy to the potential out-of-pocket costs of caring for a seriously injured worker, choosing to cover employees even if it’s not required starts to sound like a smart business move.
The cost of needing coverage vs. the cost of having it
Every 7 seconds, a worker is injured on the job in the U.S. The average cost for a workers’ comp medically consulted injury claim nationwide and across industries is over $30,000 (and over $1M for a work-related death), while the national median cost of coverage per worker is $1.70 per $100 of payroll.
The employer costs for workers’ comp insurance can depend on several factors, including industry and location. For example, coverage for a construction worker in New York or California can cost quite a bit more than coverage for a worker in the same industry in North Dakota.
One thing that can affect many businesses equally is coming up with large lump sum premiums to purchase workers’ comp coverage, which can put a strain on their cash flow. A Pay As You Go workers’ comp policy is a popular alternative to annual lump-sum premium plans.
If you’re a business owner looking at workers’ comp options, make sure to talk to an insurance expert. The insurance experts at AP Intego are available to answer any questions you have and are happy to work up a free quote for you.
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