Employers of one or more individuals are usually required to carry workers’ compensation insurance. About one in five small businesses fit this category, according to the U.S. Small Business Administration. So if you are considering launching a startup with employees, here is a guide to help you understand what you need to provide adequate coverage for your workers.
What Is Workers’ Compensation?
Workers’ compensation insurance has been present in the U.S. for over a century, spawning from a progressive pro-labor movement while also benefiting businesses. It has been a successful safety net for countless businesses to avoid high litigation costs when their employees suffer from work-related injuries or illnesses. Without insurance to cover employees, a business could face multiple costly lawsuits that would eventually lead to its collapse.
Costs Involved in Workers’ Comp
A standard workers’ compensation policy consists of two parts. While Part I covers workers’ benefits, Part II applies to employers who are sued by workers for injuries not covered by the policy.
Low-risk firms can usually enjoy lower insurance rates than what construction or other high-risk firm pays. However, high-risk companies that are unable to find a conventional plan through the private market can apply for an assigned risk plan written by a state-approved insurance agency.
The key to keeping rates under control is to effectively manage risks. The more you can show your insurer examples of proactive steps to prevent workplace accidents, the better opportunities you’ll have at lowering your rates. Some companies hire risk managers to help reduce the odds of potential disasters unfolding in the workplace. Certain high-risk organizations are required to hire safety committees to address workplace safety concerns.
What Coverage Does Workers’ Compensation Provide?
Workers’ compensation benefits are paid to injured workers regardless of who caused the injury in the workplace. When the worker files a claim, they agree not to sue their boss or the company. Employees, however, may still sue their employers over issues such as discrimination, harassment, and emotional distress. Since these situations are not considered normal employment risks by the insurer, they are not covered by workers’ compensation insurance, allowing employees to sue their employers.
Workers’ compensation benefits employers by reducing litigation risks while helping workers pay medical bills and lost wages. The following coverage is available for employees:
- Medical Treatment -Patients will be compensated for injuries or illnesses in the workplace. The coverage pays for doctor visits, diagnostic tests, treatment, and therapy.
- Vocational Rehabilitation – This assistance is designed to help employees return to work in a smooth transition. It’s to the employer’s advantage to get the employee back to work as soon as possible.
- Disability Benefits – Employees unable to work may be paid a portion of their regular income by the insurance agency instead of the employer under certain conditions. Income replacement benefits are awarded based on factors such as severity and duration of the disability.
- Death Benefits – Payments are made to family members of an employee who suffers a fatal incident on the job. This coverage includes funeral expenses.
- Employers Liability – Employers are covered for a wide range of lawsuits that might involve physical or mental injury to a worker or visitor to the workplace.
- Legal Costs – Most workers’ compensation cases are settled out of court, but sometimes a workers’ compensation claim is challenged and requires attorney fees, which are covered by the policy.
Do I Need Workers’ Compensation Insurance for My Small Business?
Each state has its own regulations on employer requirements for workers’ compensation. California requires an employer who hires one or more workers to carry workers’ comp. That means employers assume complete liabilities for at-work injuries and illnesses suffered by staff members. Employers who hire employees are expected to be familiar with all requirements that go along with carrying workers’ compensation.
However, if you’re a sole proprietor who works at home, you don’t need workers’ compensation. If you hire at least one employee, talk with an experienced insurance agent to find out more about your options. You can actually purchase workers’ compensation for just yourself, as long as it’s clearly stated in the policy.
Be aware that rates may vary from one insurance carrier to another, as the state does not regulate premiums. Most of the time, premiums are determined by numerous factors, including:
- Industry classification
- Employer history/experience modification
- Payroll wages compared with the cost of living
- Special underwriting adjustments
- Group or dividend programs
The California Labor Code requires employers to post the “notice to employees” poster in a conspicuous workplace location. Failure to post the notice will be counted as a misdemeanor, making you liable for up to a $7,000 fine. Penalties can be even more severe for companies that lack workers’ compensation coverage but are required to carry it.
If you plan on starting a company with employees in California, you’ll need workers’ compensation insurance. Contact the experts at Knight Insurance Services to learn more about finding the right coverage for your business. We will be happy to address any questions you might have and help you with a plan suited for your business needs.