December 6, 2019 HR Laws and Regulation en_US Workers compensation protects employees and employers alike. Reduce your stress and get the right coverage. Small business workers' compensation explained
HR Laws and Regulation

Small business workers' compensation explained

By Danielle Higley December 6, 2019

Small business owners have enough to think about without the added stress of researching and buying workers’ comp insurance. Of course, just having workers’ compensation insurance may decrease stress. After all, it protects employees and employers alike.

Still, like any other benefit, workers’ comp comes at a cost. Many business owners may be digging in their heels, thinking it’s more affordable to go without. Some may even think they have a choice when the law says otherwise.

“Generally, small businesses are required to carry workers’ comp,” says Cody Corrao, Intuit’s® small business insurance consultant. “But, even without the requirement, it is extremely important insurance coverage.”

Corrao started with Intuit after a few years of working alongside traditional insurance agencies. So, he’s heard plenty of horror stories of businesses without workers’ comp.

“I remember speaking with a business owner after they had just been through an incident. They did not have workers’ comp in place. He ended up paying $140,000 out-of-pocket for medical payments and the employee’s loss of income.”

It’s stories like this that make Corrao a workers’ compensation advocate. “Most small business can’t afford a lawsuit like that,” he says. “It takes up the majority of their cash flow.”

To reduce business owners’ stress, he’s offered answers to some common small business workers’ comp questions.

What is workers’ comp?

Workers’ compensation, or workers’ comp, is a form of accident insurance that employers pay. If an employee sustains an injury on the job or acquires a work-related illness, workers’ comp covers their medical expenses.

“It protects employers from lawsuits brought by an employee who’s been involved in a work-related injury,” Corrao adds. “It also protects employees by compensating them for income lost.”

Workers’ comp may be that benefit you pay for and never have to use. But, it might also be the benefit that saves the day. No one likes to think about the worst-case scenario. Even so, operating without a plan for “just in case” could be the most expensive mistake you ever make.

Should I provide workers’ comp insurance at my small business?

State or federal law may require you to carry workers’ comp insurance. But that’s not the only reason you should have it.

  • It’s good for employee morale. In the event of an accident on the job, employees like knowing their bosses have their backs.
  • It protects you, too. Accidents happen, but there are bills to pay, insurance or no. Workers’ comp keeps you, the employer, from expensive lawsuits.
  • You won’t tempt Murphy’s Law. The day you decide not to carry workers’ comp insurance is the day someone gets hurt. That’s just how the universe works!

In the end, every small business is different. What works for some may not be right for others. But for most employers, buying workers’ compensation insurance is a no-brainer.

Do small business owners need workers’ compensation?

It depends. First and foremost, workers’ comp is a benefit that changes from state to state and industry to industry. And whether a small business owner needs it depends on their number of employees.

In Alabama, some small businesses with four or fewer employees are exempt from purchasing workers’ comp insurance. In Washington, sole proprietors are one of the few acceptable exclusions. Though, many may prefer to buy it anyway.

“Most states require workers’ comp insurance to be implemented as soon as the business has one or more full- or part-time employee,” says Corrao.

Finally, consider this: 64% of business owners surveyed said they currently provide workers’ comp insurance.* Of these, 13% said they purchased workers’ comp after getting fined for not having it.

How much is workers’ comp for small businesses?

“Each insurance policy’s cost will vary based on the risks associated with the business and their day-to-day activities,” says Corrao. “Often, you will see a small business’s workers’ comp policy range from $2,000 to $4,000 a year, for those with only a few employees.”

The national median cost of workers’ comp coverage, per worker, is $1.70 per $100 of payroll, according to the 2018 Oregon Workers’ Compensation Premium Rate Ranking Summary. ​The average cost for a workers’ comp medically consulted injury claim, across all industries, is over $30,000, says the National Safety Council. It’s over $1 million for a work-related death.

Overall, workers’ comp is one of those expenses where the cost of not having it could easily trump the cost of buying it.

Are contractors covered under workers’ comp?

“Generally independent contractors (1099 workers) are not eligible for workers’ comp insurance,” says Corrao. “You must be an employee under the business payroll.”

But that doesn’t mean contractors don’t receive workers’ comp. In some cases, independent contractors might buy their own workers’ comp insurance. And then there are contractors employed by staffing agencies.

“Staffing agencies and host employers are jointly responsible for maintaining a safe work environment for temporary workers,” says the Occupational Safety and Health Administration (OSHA). For example, host employers must provide their temporary workers with safety training. This should be “identical or equivalent to that provided to the host employers’ own employees performing the same or similar work.”

Staffing agencies, for their part, need not become experts on specific workplace hazards. Though, according to OSHA, they “should determine what conditions exist at the worksite, what hazards may be encountered, and how to best ensure protection for the temporary workers.” OSHA does not say whether or not a staffing agency must have workers’ compensation. Instead, it says, “staffing agencies may be able to utilize the safety and health consultation services provided by their workers’ compensation insurance providers.”

Small and medium-sized businesses can request assistance from OSHA’s free on-site consultation service. These services are separate from enforcement and do not result in penalties or citations.

How does workers’ comp work?

Every insurance company is different. Typically, a workers’ comp provider pays out a claim within 14 days of the worker notifying their employer and making a claim. Some will send a check. Others might use direct deposit. Here’s a brief synopsis of a typical workers’ comp situation:

  1. An employee sustains an injury on the job.
  2. The employee notifies their employer, who has workers’ comp insurance.
  3. The employee seeks medical attention.
  4. The employer provides the employee with claim forms and gives them the contact information of the workers’ comp insurance provider.
  5. The employee files their claim with the insurance company.
  6. The insurance company approves the claim and pays for things like medical bills or rehabilitation costs. If the employee is unable to work, the insurance company might pay two-thirds of the employee’s normal wages.
  7. The employee recovers and returns to work.

Talk to your workers’ comp provider to get more details on their claims process. Don’t yet have workers’ comp provider for your small business? Check out our resources and find the coverage that works best for your business.

*QuickBooks Payroll commissioned Pollfish in June 2019 to survey 1,067 U.S. business owners (age 18+) about their workers’ compensation coverage. A statistically significant sample of survey respondents was independently provided by Pollfish. Respondents were rewarded via third-party applications for their voluntary participation.

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Danielle Higley is a copywriter for TSheets by QuickBooks, a time tracking and scheduling solution. She’s been a contributor to, FiveThirtyEight, and a variety of HR and business blogs where she can put her affinity for long-form storytelling to best use. Read more