Workers’ Comp 101: Everything a Small Business Owner Needs to Know

As a small business owner, it is essential to minimize any potential financial losses and protect both yourself and your company from liabilities such as fines and lawsuits. One important way to do this is by getting workers’ compensation insurance to protect your company and your employees in the case of an injury or accident at work.

Discussing worker's compensation

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Depending on where your business operates, it might be a legal requirement to provide workers’ compensation insurance to your employees. As a result, it is important to check both federal and state laws to ascertain if you are legally obligated to give a worker’s compensation package to your employees. This can help avoid any legal action being taken against you or you or your business.

In this article, we provide all the information you need in order to understand the ins and outs of workers’ compensation insurance for your small business.

What Is Workers’ Comp Insurance?

Workers’ compensation insurance, usually known as workers comp insurance, helps cover medical expenses and income-related losses of employees who experience a work-related injury.

So if an employee hurts themselves at work or becomes sick as a result of the nature of the work, they can be entitled to receive compensation. This may cover both the costs of treatment and rehabilitation, including cases of permanent impairment, as well as any lost wages that occur from an inability to work due to the injury.

How Does Workers’ Comp Insurance Work?

Filing a workers compensation claim

photo credit: Sora Shimazaki / Pexels

As a small business, you have the option of getting state-funded workers’ compensation insurance if it is available, or you can opt for a private insurance company whose premiums may vary depending on the kind of coverage you get. Alternatively, you can also opt for pay-as-you-go plans that provide a much more accurate estimation of workers’ comp premium payments as these are based on the actual payroll as opposed to the budgeted payroll of your employees.

When getting workers’ comp insurance packages, businesses usually consider two main factors, the number of employees and the payroll size. On the other hand, the insurance company considers the level of day-to-day risk associated with the job, the number of prior claims, and any other criteria they may have.

However, this doesn’t mean that you should consider opting out of workers’ comp insurance if your business largely involves desk-based work. This is because while the probability of injury might be low, it is still likely and quite possible. So getting workers’ comp insurance is in your company’s best interest to avoid potential legal and medical costs.

To receive workers’ comp insurance, an employee who is injured at work must file a claim, which is usually mediated by the company’s HR department. This claim is then forwarded to the insurance provider within a particular time frame, typically a 24 to 48-hour window. The provider then notifies all parties about whether the claim is approved or denied. In case the provider denies the claim, the employer can request a review.

What Does Workers’ Comp Insurance Cover?

Workers’ comp insurance coverage is a product of state laws and the nature and degree of an employee’s injury. As a rule of thumb, businesses must provide coverage for any injury or accident that occurs within the scope of a worker’s employment-based activities.

It is important to remember that workers’ comp insurance is awarded regardless of who is at fault for the occurrence of the injury. Usually, this covers medical bills, lost income, ongoing care costs, as well as funeral costs.

However, remember that companies are not obligated to provide workers’ compensation in situations where the employee gets hurt intentionally, sustains an injury while they are under the influence, gets into an accident while commuting to and from work, or gets injured during an altercation with another colleague.

How Can You Lower Your Workers’ Comp Insurance Costs?

Worker wearing hard hat

photo credit: Jon Tyson / Unsplash

As a small business owner, every effort to cut costs can make a difference. To reduce your worker’s compensation insurance costs, you can adopt the following strategies:

  • Review existing health and safety codes and eliminate any problems that arise at the worksite.
  • Provide regular health and safety training to all employees, including operating heavy equipment, if applicable.
  • Ensure your employees are correctly classified to avoid awarding compensation incorrectly.
  • Create a return-to-work program to lower the amount of lost-wage compensation paid to employees.

Final Thoughts

Workers’ comp insurance is a great way to safeguard both your company and your employees in case of work-related injuries. It can help your business avoid lawsuits and also contribute to enhancing its reputation so that it is recognized as a company that values and protects its employees.


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