A New Business’s Guide To Worker’s Compensation Insurance

Workers Compensation concept

Nearly every business in the United States that hires employees are required to have worker’s compensation. Worker’s compensation is required by law and there are only a few exceptions to this.

No matter what size your organization is, there are statutory obligations. Today’s modern worker’s compensation laws provide comprehensive and specific benefits to employees when they have suffered a workplace injury or illness. These benefits include:

  • Medical expenses
  • Death benefits
  • Lost wages
  • Vocational rehabilitation

Those without protection are not only liable for the financial burden of these benefits but might also have to pay penalties as required by the state. As with the specific requirements, this is dependent on the state in which the business operates.

Who Needs Workers’ Compensation?

This is the most important question to address. Not every business has to purchase workers’ compensation insurance, for instance, sole proprietors and partnerships aren’t usually required to buy a policy unless they have employees. However, the business owners can, in most states, purchase insurance to cover themselves should they wish to.

If you pay solely on commission, you don’t always have to purchase a workers’ compensation policy in some states.

Only Texas (and New Jersey in theory), provide employers the option to purchase a policy. But this doesn’t absolve them of any financial responsibility should an employee be injured at work or is made ill due to their employment. In contrast, most states allow large employers to self-insure. However, there are strict rules on this.

Therefore, the general rule of thumb is if you have employees, you should buy workers’ compensation cover.

Examples of When It Might Be Needed

Imagine that you are an accountant with an office in an urban center and you don’t protect yourself with workers’ compensation. Then you decide to hire a painter to redecorate and modernize your office. If they don’t have workers’ compensation coverage for themselves and they’re injured while painting your office, they could claim compensation and you would be financially responsible.

Therefore, it is important to understand not only your current insurance needs but also your future requirements.

Considerations To Make Your Policy Right For You

Because of the state differences and complexities of managing this, there are several considerations you need for your business. Here are some immediate considerations when purchasing workers’ compensation insurance:

  1. Ensure that you are properly covered in every state that your employees are expected to live, travel and work in.
  2. Check whether you use independent contractors or subcontractors who aren’t insured. These individuals can be treated as employees in some states.
  3. If you operate in a monopoly-fund state, ensure you arrange coverage through those state funds. However, employees based elsewhere will need coverage separate from the state fund.
  4. Check that you are properly classified in each state. This can cause massive problems if you aren’t properly classified when it comes to claiming on a cover or during an audit.
  5. Determine if you are on an assigned risk plan, which can be more expensive than a voluntary market purchase.
  6. Check what credits may be available in your state. These can offset the cost.
  7. View any audit work papers from your insurers so you can review them and make adjustments to lower premiums in the future.
  8. Check for alternative sources of compensation such as trade associations.
  9. Regularly check for changes. Laws can quickly change and this can leave you short if you aren’t keeping an eye on the situation.


Workers’ compensation is a legal requirement in many parts of the United States. If you don’t purchase any insurance or the wrong insurance, you can be liable for any financial costs that may result from an employee being injured or made ill while at work and from fines levied by the state. Keep your business financially safe; stay up-to-date with state laws and correctly insure your business.

Do you need worker compensation? Do you want more advice?

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