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Workers Comp Insurance For Small Business

Whether you have one employee or more than 50, your business could be at risk of ruinous lawsuits without workers’ compensation insurance. Workers’ comp insurance for injured employees is required for employers in every state except Texas, but the details vary from state to state. The laws are in place to make sure employers provide coverage for the cost of work-related injuries or occupational sickness, irrespective of employee negligence.

Here’s what you need to know about workers’ compensation insurance to help determine if your business needs it.

Risk Prevention

There were 2.8 million nonfatal workplace injuries and illnesses reported by private industry employers in 2018, according to the U.S. Bureau of Labor Statistics. While most workplace injuries are slips, trips, falls and muscle strains, employees can also get hurt from falling objects, repetitive strains, cuts and toxic fumes. Although, the Occupational Safety and Health Administration (OSHA) reports workplace injuries are down, it’s important for businesses to remain diligent about maintaining the safest environment for employees they can.

OSHA recommends self-auditing your workplace for potential hazards such as the use of any dangerous materials, observing employee work habits and practices, and then discussing safety and health issues with employees.

As you gather information, identify areas of the business that need improvement, including:

  • Safety and health activities
  • Equipment (inspection and maintenance)
  • Employee training
  • Accident and injury history

For more on small business workplace safety, download OSHA’s Small Business Handbook.

Workers’ Comp Coverage

Although Texas, unlike other states, doesn’t require employers to have workers’ compensation coverage, not having insurance leaves employers open to personal injury lawsuits from employees hurt on the job—and there are no limits to the potential damages awarded. Workers’ comp insurance covers medical expenses, rehabilitation and a portion of lost wages for employees who become injured or ill on the job and possibly living costs for those with permanent disabilities. Keep in mind, coverage is only for injuries sustained while performing duties related to the job and not, for example, playing sports while on break at work.

Because workers’ comp requirements differ from state to state, the penalties for not having workers’ comp vary also, including hefty fines and even jail time. While having workers’ comp in place under your state rules can protect your business from employees suing for injuries or lost wages, if they sue for things outside the policy, employer’s liability insurance helps pay for court costs and legal fees.

Costs of Workers’ Comp

There are many factors which determine the cost of workers’ comp for your business such as:

  • The state(s) where the business’s employees work
  • Annual payroll
  • Industry type
  • Job duties
  • Claims history

Obviously, high-risk businesses, like construction, would pay more for workers’ comp, but you can also check your employee’s “class code” to help determine how much you can expect to pay.

Worker’s Comp for the Sole Proprietor

Have no employees and think you don’t need workers' comp insurance? Not necessarily. Many companies now require their suppliers to carry worker’s comp to limit their liability. As an independent contractor (IC), the company you provide services to may still be liable for injuries you endure on the job, so they’ll want you to carry your own coverage. Likewise, if your company uses independent contractors, you may need to carry workers’ comp on those workers if the state determines the IC is really acting as an employee of your company.

Finally, if you as a sole proprietor get injured while working, workers’ comp coverage could help you with medical expenses and replacement wages while you recover from your injuries.

Learn how to prevent other business risks in Progressive’s e-guide, “Prepare and Protect: The small business owner’s guide to identifying and managing risks.” 

corner of workers compensation insurance form