Let’s get the bad news out the way up front. From the moment that you start a new business — and throughout your business life cycle— you probably have to carry Workers’ Compensation (WC) insurance. The laws vary by state, but the WC coverage requirement can potentially kick in if you have just one employee.
The coverage can be expensive, and the rules can be complicated. But there’s good news, too. Even as WC helps protect employees from out-of-pocket expenses related to workplace injuries, the law protects employees and businesses from liability issues that could otherwise easily arise from on-the-job accidental injuries.
Small business owners do need to learn the WC laws in their states, but understanding the more universal principles can help make the details more digestible.
The Universal Principles of Workers’ Compensation Versus State Requirements
Workers’ Compensation coverage is typically obtained by purchasing qualified WC insurance policies to cover workers’ on-the-job injuries. In some cases, self-insuring might be an option, provided your company meets state requirements and you’re willing to face potential risks. This is pretty much the truly universal part of WC law.
On the surface, many other aspects of WC appear consistent across the U.S., but state law tinkers with the details. Here are some areas where you need to understand those details so you can comply with them:
- Who must be covered: Generally speaking, all states require companies to cover all employees. The key factor, however, is when the WC requirement kicks in and the state’s definition of employee. In fact, owners of one-person sole proprietorships might want to cover themselves if they work in dangerous professions. Not necessarily, though.
- When liability comes into play: WC pays benefits even when employee clumsiness causes their injuries. And, if an unsafe workplace condition causes accidents, your employees get their benefits, but they cannot sue you. No state WC is likely to pay benefits, however, when worker intoxication or certain willful acts (based on state law) factor in. On the other hand, when a third party’s negligence causes employee injuries, they can sue that third party. State law will dictate if that compensation will reduce the WC claim value (generally not an issue).
- What perils are covered: Again, the details vary between states, but WC generally covers workplace-related accidental injuries and illnesses. These can include injuries that occur from anything like a slip on a wet floor or equipment-related accidental injuries. But, they can also include illnesses sustained from toxic exposure and also chronic physical issues, such as back pain or maybe repetitive stress injuries. However, pre-existing conditions can potentially make a difference to a claim.
- How claims are filed: The process varies significantly from state to state. It always involves obtaining medical attention and notifying the employer as soon as possible. Injury victims in some states can go to their own doctors; in other states, the employer chooses the doctor. Sometimes, employers handle most of the claim-filing paperwork, but employees can become directly involved at any time.
- What type of benefits workers can expect: Employees should not have to pay out-of-pocket for necessary medical treatment and therapy, and they typically can collect compensation for lost wages when they cannot work temporarily or on a permanent basis (both are viewed as disability). In the event of employee fatalities, their families can pursue some form of death benefits as defined by state law. Still, the amount of compensation can vary widely from state to state. Your insurer is probably well-aware of the numbers. You should know them, too.
- How return-to-work issues are handled: Insurers typically keep track of a disabled employee’s ability to return to work. Even when employees have not recovered completely, questions can arise concerning the ability to return on a light-duty or part-time basis, provided you have qualifying work available. This is another area where state laws can make a difference to the exact rules. Naturally, employees who believe that they cannot return in any capacity might choose to contest the requirements.
Controlling Workers’ Compensation Costs
Safety first is a good motto for any small business to follow. When you have fewer employees, you tend to establish a personal relationship with each one, and you care about them. If you need another reason for keeping them safe, however, understand that claims experience drives WC premium costs.
To explain as simply as possible, insurers look at the money that they pay out for your employee injuries (your claims experience), compare that against industry averages, and base your premiums on their findings. In other words, fewer workplace safety hazards can likely translate into lower premiums.
To learn how to remain watchful for common safety hazards, start by reviewing 11 tips for effective workplace housekeeping, which was published by the National Safety Council (and has little to do with cleanliness). And, particularly when your workers deal with dangerous equipment, maintain it well — and train, train and train some more.
Another option might be to join a Professional Employer Organization (PEO), which essentially acts as a co-employer that handles or advises on many HR-related tasks, including WC. To shop for a PEO in your area and learn more about how they work, do an Internet search for professional employer organization.
Where to Learn More About Your State’s Workers’ Compensation System
Upfront knowledge about the law is essential toward meeting your state’s WC requirements and avoiding penalties for improper coverage or procedures. The first place to go is your state’s online WC information.
The United States Department of Labor provides links to state and territory information. Unfortunately, while, information provided by the states may be the most accurate and up-to-date, that information can vary widely when it comes to understandability and ease of use. NOLO offers State-Specific Information for Workers’ Compensation that is much easier to comprehend even if there is some chance that every detail may not be accurate.