As a business owner, you have a lot of responsibilities, including the safety of your own workers. That’s why most states require business owners to purchase workers’ compensation insurance (also known as workers’ comp or workman’s comp) for employees.
But what about you, the business owner? Does workers’ comp cover business owners? And is it a good idea to get coverage as an owner? Keep reading to learn when business owners might be exempt from workers’ comp and what they typically elect to do anyway.
The Ins and Outs of Workers’ Comp
So what is workers’ comp and how does it work? Workers’ comp is designed to cover medical expenses and protect a portion of wages when a worker suffers a work-related injury or illness.
Without workers’ comp, businesses could be held responsible for an employee’s medical bills, lost wages and potential fines if they were injured during the course of work. Employee benefits depend on a few factors, including the business’s location and the policy’s terms. Some workers' compensation benefits paid to an injured worker include payment for medical treatment and partial wages.
Although it’s the worker that receives workers’ comp benefits for job-related injuries, it’s the employer’s job to find and pay for the insurance policy.
What If an Injury or Illness Happens?
If a workplace injury or illness occurs, employees must report the incident to their employer. The employer is then responsible for filing a workers’ compensation claim with the insurer. It’s a best practice to file the claim as soon as possible to allow all parties — employer, employee, insurer, and medical providers — to focus on providing the right care and benefits to the employee.
How Are Workers' Comp Premiums Calculated?
Workers’ comp insurance premiums are calculated per $100 of payroll. For example, if your workers’ compensation policy rate is $3.00 and your annual payroll is $500,000, you would pay $15,000 per year for workers’ comp. On top of that, things like experience mods, taxes, fees and other costs can affect your premiums. However, the following equation should give you a good baseline to work with.
Traditionally your workers’ comp premiums are based on an estimate of how much payroll you think you’ll pay for the next year. But tools like Hourly can help you avoid guessing games and save on workers' comp by connecting your payroll right to your policy. That way your premiums are based on your employees' actual wages, and not an estimate. This can help you plan cash flow much better, eliminate the deposit required up front, and effectively rid you of nasty surprises during your workers' comp audit at the end of your policy.
What Do You Need to Get Your Workers’ Comp Insurance Rate?
To get your workers’ comp insurance rate, you need to figure out the class codes that match what your employees will be doing for work. A class code is how insurance companies categorize an employee based on the risks associated with their job. Your insurance agent can help you with this, you just need to know what your team will be working on throughout the day, and sometimes where they’ll be working too. Your agent can also help get you multiple quotes for workers’ comp coverage, so you can be sure you’re getting the best deal for the coverage you need.
Understanding Workers’ Comp Requirements
Workers’ comp requirements vary by state and industry. You can use online resources such as FindLaw.com to look up your state’s rules regarding workers’ compensation coverage. However, if you have any specific questions, you should first check with your insurance agent.
Depending on state law, failure to carry workers’ comp can result in hefty fines or jail time. Most states require you to have a policy ready as soon as you hire someone new.
There are also exceptions to workers’ comp requirements. Exceptions can vary by state too.
In general, independent contractors, sole proprietors, and individuals with no other employees on payroll usually don’t need workers’ compensation.
Does Workers’ Comp Cover Business Owners?
The short answer is yes, it can. You can include business owners and executive officers in your workers’ comp policy. However, many states have an ownership exclusion, which means you’re not required to include owners and officers in your workers' compensation insurance policy.
Your first step should be discussing this exclusion with your insurance agent. If you’d like to do some research ahead of time, visit the National Federation of Independent Business’s website to see workers’ comp exceptions by state.
Excluding leadership reduces your workers’ comp costs but it also means if you are injured at work, your medical expenses and wages would not be covered by your workers' comp policy.
What Business Owners Typically Decide When It Comes to Workers’ Comp for Themselves
Most business owners choose to exclude themselves from their workers’ comp policies. Why? They can save money that way. Think about it: If you’re added to your company’s workers’ comp policy, you’re yet another employee that requires insurance. And you can probably guess what happens next. Your premiums will go up.
Plus, large and small business owners alike tend to be motivated to get back to work since they make a much bigger impact on their business’s success and revenue than just what they take home as their salary.
Keep in mind, your health insurance is obligated to cover your injuries—even if you are injured on the job. But your health insurance may have limits on the total amount they’ll cover, or you might have a deductible you’ll need to pay, depending on your insurance carrier and plan.
Workers’ comp, on the other hand, doesn’t have a limit for covering healthcare costs related to on-the-job injuries. What’s more, workers’ comp typically provides partial compensation for wages lost due to work-related injuries and death benefits to family members.
So...How Do I Ultimately Decide if I Need Workers’ Comp?
Like most business decisions, choosing whether or not to include yourself in a workers’ comp policy is a personal one that involves weighing the costs and the benefits. But hey, you’re a business owner, you have a lot of practice making important decisions. And if you need a little help with this one—we recommend speaking with your insurance agent to get a full rundown on workers' compensation laws. Ultimately, you want to feel comfortable with whatever path you choose, and gathering information is the first (and most important) step.