About 17.3% of small businesses in the U.S. have at least one employee. The workers’ compensation system requires businesses with employees to carry workers’ compensation insurance. Therefore, about 1 in every 5 businesses in the U.S. has a legal mandate to carry workers’ comp insurance. This coverage is crucial because it protects employers from lawsuits and losses resulting from workplace accidents. More importantly, it helps injured employees return to their pre-injury status, both physically and financially.
Types of Workers’ Compensation Benefits
Workers’ compensation insurance is a type of commercial insurance policy that provides different types of benefits for injured or sick employees. The benefits include:
- Lost wages – Workers’ comp covers a percentage of the pre-injury income lost during the period when the employee is nursing a work-related injury or illness.
- Medical expenses – This policy covers the treatment expenses for the injured employee, including doctors’ appointments, prescription medications, rehabilitation equipment, and hospital and ER visits.
- Disability benefits – In case an employee sustains a severe injury that results in a disability, workers’ comp will also reimburse a portion of the pre-injury income for the time they remain disabled and unable to work. In California, employees are eligible for two-thirds of their weekly wages, although this varies with the amount of gross income. Insurance companies categorize disabilities as temporary or permanent and partial or total. In case of a permanent disability, the victim is eligible for disability benefits for the rest of their life.
- Rehabilitation expenses – If an employee requires ongoing care such as physical or vocational therapy, workers’ comp can also cover the related expenses. Workers’ comp also covers the cost of retraining an injured employee for work.
- Death benefits – In case an employee succumbs to a work-related injury or illness, workers’ compensation insurance will pay death benefits to the beneficiaries. These benefits can cover funeral expenses and lost wages.
General Liability vs. Workers’ Compensation Insurance
Unlike workers’ compensation insurance that covers your employees against workplace injuries and illnesses, general liability insurance covers third parties’ bodily injuries and property damage. So if, for instance, a group of college students touring your premises sustains bodily injuries in a stampede triggered by an explosion at your laboratory, general liability insurance will cover the resulting medical and legal costs.
Although both insurance policies provide protection against bodily injuries, they have several differences. Firstly, contrary to workers’ comp insurance which is mandatory in all states, except Texas, general liability coverage is optional. Secondly, while workers’ comp covers employee-related injuries and illness, general liability insurance only covers third-party injuries as well as property damage. Finally, workers’ comp pays for medical expenses, lost wages, disability benefits, and death benefits, while general liability covers medical expenses, legal costs, and third-party claims.
Is Workers’ Compensation Necessary for Business Owners?
Even if you operate as a sole proprietor with no employees, you may still find this coverage useful. Workers’ compensation is necessary if:
- You want to protect yourself from work-related injuries
- You are a contractor, and your clients require you to have workers’ comp
- You hire contractors regularly
Cost of Coverage
Some of the factors that determine the cost of workers’ compensation insurance include:
- State – The state of the economy, general living standards, as well as state laws determine the cost of workers’ comp.
- Industry classification code – The National Council on Compensation Insurance (NCCI) assigns different classification codes to businesses depending on the size of risk involved. This code determines how much employers will pay for workers’ compensation insurance. In California, for example, for every $100 in payroll, employers pay 40 cents and $33.57 for low-risk and high-risk workers, respectively.
- Experience modification factor – This reflects the safety in your business compared to similar businesses within the same class code. It is calculated based on the average of the previous three operational years, and it depends on the number of claims filed during this period.
How to Buy Workers’ Compensation Insurance
You can buy workers’ comp insurance either from private insurance companies or state-funded workers’ comp programs. Some states require all employers to purchase workers’ comp through the state insurance fund. To provide you with an accurate quote, the insurance provider will ask for information such as:
- Details of your business, including name, location, and description of the business
- Number of employees and annual payroll
- Class code
- History of workers’ comp claims
- Social Security Number or Federal Employer Identification Number
- Business structure
Contact the experts at Knight Insurance Services to learn more about finding the right workers’ comp insurance near you for your business. We will be happy to address any questions you might have and help you with a plan best suited to your business needs.