Workers’ compensation is state-mandated insurance coverage that protects employees against workplace injuries. The exclusive remedy for injured workers, workers' comp covers employees’ medical bills, medication and rehabilitation costs, and precludes employees from suing employers for their injuries.
Workers' comp is required coverage in most states, and provides the following benefits, and peace of mind to employers and employees:
- Payment for injured employee's medical treatment
- Partial replacement of lost wages if a work-related injury requires time away from the job
- Employer protection against litigation and defense costs
Optional coverages include financial assistance for family members, and reimbursement for funeral expenses, if an employee dies in a workplace accident. You may also be able to purchase insurance to cover legal expenses should an employee make a false claim of a workplace illness or injury.
Small businesses typically purchase workers' comp through three main routes:
- Purchasing coverage for your company through a private insurer
- Joining other small businesses in purchasing coverage through an insurance pool
- Buying coverage from the state in which your business is located
Some states allow small businesses to self-insure their workers' comp insurance requirements, if a company can demonstrate the financial ability to pay any claims from existing funds.
Workers' compensation requirements and premium costs vary by state and type of business. Some states, for instance, require workers' comp coverage once a small business hires its first non-family member employee. Other states have a higher employee threshold, or base workers' comp requirements on payroll size. Most states have strict penalties for failing to purchase workers’ compensation insurance.
Since workers' comp premiums are based on industry risk as well as expected payroll size, small businesses that operate in more than one state or use independent contractors should explore their insurance options carefully. An experienced agent or broker can help you arrange the most effective coverage for your needs.