If you intend to run a business that has employees, you'll need worker's compensation. This is a form of insurance that protects both you and your employees if an employee experiences an injury while on business property. Every state, except for Texas, requires any business with employees to purchase worker's compensation insurance by law.
When Do You Pay Worker's Compensation?
If a worker is hurt during business hours due to negligence on your part or defects in equipment that belongs to your business, the worker is entitled to a worker's compensation claim. There are cases in which the employee will be at fault, such as if he was not operating the machinery properly or was being negligent. Either way, it's essential that you have worker's compensation so that your company won't lose significant amounts of money to compensate for an injured employee. If you're compliant with worker's comp law, you should have a policy anyway.
What is the Purpose of Worker's Compensation?
The money from worker's compensation is used to pay workers for the time they have to spend off work to rehabilitate their bodies after an accident. If an employee decides to use their worker's compensation benefits when they are injured, the employee foregoes the right to sue you for the injury. This can protect you and your business from damaging lawsuits.
Are There Exceptions to Worker's Compensation?
Even though you are generally required to purchase worker's compensation, there are some exceptions. For instance, if your business is a partnership or sole proprietorship, the state you live in may exempt you from having worker's compensation since you will likely be both the owner of the business and an employee. If you own and operate a family business in which all the employees are related to you, you may also be able to forego worker's compensation insurance. This may also apply if you own a farm. If you hire independent contractors often, you won’t be obligated to have worker's compensation. However, this does not mean that you won't be held liable if a contractor is hurt while on your property.
How Much Does Worker's Compensation Cost?
The premium for your worker's compensation insurance will depend on the state your business resides in and the type of workers you employ. Each state has a list of Worker's Compensation Codes. There is a unique code for each job that pulls data on job risk and other factors. Each worker's compensation code typically has a present value that is then adjusted by your agent to ultimately calculate insurance premiums. Worker's Compensation Codes are incredibly important--they should be checked and double checked because an error here can result in higher insurance premiums or insufficient coverage!
Your premium could also increase or decrease depending on an experience rating. Meaning your premium prices could change based on how many injuries have occurred on your property. It's best to check with your state's Department of Labor for an accurate estimate of what you'll pay for worker's compensation insurance on a monthly basis.
