A Workers’ Compensation Guide for Small Business

Employees are imperative to the successful operation of all small businesses, perhaps even more so than for large corporations because those larger entities usually have workers they can allocate where there’s a labor shortage. But, what happens when an employee is severely injured on the job? What are the responsibilities of a small business? That’s what this guide aims to do, provide a basic understanding of a small businesses’ responsibilities when an employee becomes too sick or injured to continue in their job.

Workplace accident

“Unlike other personal injury claims, if you suffer an injury in the workplace, you don’t need to prove negligence was caused by the employer or if it was the employee’s fault,” says Attorney Dan Brown of St. Louis Personal Injury Law Firm Brown & Brown. “Workers compensation is award merely for injuries suffered as a result of your being employed.”

What Kind of Insurance Coverage Does Your Small Businesses Need?

The answer to this question varies state-to-state, but most states make it mandatory for businesses to carry workers’ compensation insurance. That alternative to not having workers’ compensation is paying for an injured employee’s medical bills out of pocket, possibly paying fines and penalties, and perhaps even opening yourself to a lawsuit. Workers’ compensation is also helpful for paying part of an employee’s wages while they recover from their workplace accident.

While some states exempt companies with three or less employees from being required to purchase workers’ compensation insurance, some like Colorado require all businesses private or public to provide coverage with even just one employee. Here are three big indicators that your small business might need workers’ compensation insurance:

  • You have one or more employees
  • Your business or industry is associated with occupational hazards (oil & gas, chemicals, construction company, etc.)
  • Your business is in a state which requires workers’ compensation coverage

What Will Workers’ Compensation Cover?

This insurance coverage will help anytime an employee is injured or becomes sick or ill due to occupational reasons. Some policies even cover repetitive stress injuries and workplace violence. General benefits include:

  • Medical costs (hospital stays, surgery, medicine, treatments, therapy, etc.)
  • Lost wages
  • Death benefits paid directly to dependents of a worker, in the event a worker dies
  • Compensation for psychological effects caused by the injury or illness
  • Rehabilitation, therapy, and retraining

What Workers’ Compensation Will Not Cover

The following is general list of those conditions or cases that some or all state workers’ compensation programs will not cover:

  • Injuries or illnesses that occurred outside of the workplace
  • Injuries or illnesses that were caused as a result of a violation of company policy
  • Injuries or illnesses that occurred as a worker committed a crime
  • Injuries or illnesses that were self-inflicted

Workers compensation claim

How Is Workers’ Compensation Paid Out & Are There Limits?

The amount paid out to injured or ill employees is determined by each state’s Workers’ Compensation Board. The board will factor in all of the case details, such as severity of the injury or illness, how much the employee made, and how much is owed for medical costs. Most insurance policies for workers’ compensation have a basic limit starting around $100,000 and could go as high as $500,000 for each employee.

What Are the State Requirements?

If you’re small business hasn’t factored in workers’ compensation yet, then it’s time to find out what your state’s requirements are. The National Federation of Independent Business (NFIB) has a great state-by-state comparison tool online to look up what each state’s requirements are.

How Do I Get Workers’ Compensation Insurance for My Small Business?

Typically, you can get workers’ compensation insurance from the same place you get your general business ownership insurance policy. There are several online services where you can shop a quote for a workers’ compensation insurance policy. Here are just a few:

How Much Is a Workers’ Compensation Insurance Policy Going to Cost My Small Business?

Again, the cost of a workers’ compensation policy will depend on several factors, such as:

  • Business size
  • Number of employees
  • Risk of occupation
  • Locations of workplace

According to insurance provider CoverWallet, a small business that has only about three employees can expect to dish out about $2,000 to $3,000 a year, whereas the costs for premiums will go up from there depending on the number of employees, type of work, etc. On average, a small business can expect to pay as little as $19 a month for workers’ compensation premiums, while an average sized business can pay anywhere from $209 to $286.

Caution wet floor

How to Prevent Workplace Injuries?

It’s is crucial that even small businesses have employee handbooks for their employees, because they outline general job guidelines, policies, expectations, benefits, and what is considered appropriate behavior in the workplace. Not only can an employee handbook help with curbing workplace misconduct, it serves to document that an employer has given written statements about what disciplinary action could be taken or when an employee can be terminated.

Workers’ compensation Attorney Thomas J. Tomazin, of The Denver Injury Law Firm, says, “An employee handbook also helps prevent unwanted lawsuits by eliminating any ambiguity as to what employees know about the company’s expectations.” While Tomazin mainly represents injured workers, he adds, that if an employee violates a policy, it’s easy to point out the policy they violated. Many employers will also put an “at will employment” in the handbook, if their state allows terminating an employee at will. Making sure your employee signs the handbook also helps defend the small business owner from a wrongful termination lawsuit. It also helps to have employees sign employment contracts. Here are two generic employee contracts: Employment Contract for W-2 Employee and Employment Contract for 1099 Worker.

Here are some of the general subjects covered by employee handbooks:

  • Company Overview & Core Values
  • Confidentiality & Non-Disclosure Agreement
  • Anti-Discrimination Policy
  • Employment at Will
  • Employee Expectations and Code of Conduct
  • Employee Dress Code
  • Compensation & Benefits
  • Workers’ Compensation & Workplace Injuries
  • Computers and Technology Policy
  • Holiday, Time Off, Leave Policy
  • Progressive Discipline Policy
  • Signature Page

In conclusion, workers’ compensation is a safety net for small businesses, otherwise they’d have to resolve injury disputes through litigation, which would be much more expensive. If you have an employee sign a workers’ compensation release, they waive all rights to file any further claims against you. We hope your found this information to be useful in learning why your small business may need workers’ compensation.

Research Links & Sources:

https://www.prnewswire.com/news-releases/youre-the-boss-insurance-concerns-for-small-retail-employers-300615359.html

https://squareup.com/townsquare/workers-compensation-101-a-guide-for-small-business-owners

https://www.coverwallet.com/insurance/workers-compensation

https://www.nfib.com/content/legal-compliance/legal/workers-compensation-laws-state-by-state-comparison-57181/

https://fitsmallbusiness.com/employee-handbook-sample/

https://fitsmallbusiness.com/employment-contract-template/

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