What Is Workers’ Comp Insurance for Small Businesses?

Workers Comp 
Workers’ Comp Insurance for Small Businesses

Workers’ comp insurance for small businesses pays an employee’s medical bills, lost income, disability benefits, funeral expenses, and more if they get hurt, sick, or even die from a work-related accident. And in exchange for premiums, employers are shielded from getting sued for workplace injuries.

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How Does Workers’ Comp Insurance Work?

When one of your employees is injured or sick for work-related reasons, workers’ comp pays many of the costs associated with getting them well again. 

Insurance companies typically cover:

  • Healthcare: Healthcare expenses for surgery after a workplace accident
  • Wages: A percentage of the employee's average weekly wage while they can’t return to work
  • Job Training: Job training and job placement services when injuries prevent employees from going back to their regular job
  • Disability income: Payments for part or all of an employee’s lost wages if they become partially or fully disabled 
  • Death benefits: Funeral expenses and partial wage payments to surviving spouse and children if the employee passes away from their injury or illness
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Small Business Owners Need Workers’ Comp Insurance 

Workers’ compensation coverage is a must-have business insurance for most small companies. Besides protecting employees, workers’ compensation saves business owners from cleaning out business or personal bank accounts to pay bills related to a worker’s injury or illness. 

Workers' compensation laws require most businesses with employees to have a workers' compensation insurance policy. You’ll likely need this coverage if you:

  • Are going to hire your first employee
  • Have one or more full-time or part-time employees

But there are exceptions, so it’s important to see the state's laws. Some states like Texas don’t require you to carry workers’ comp, while California says you don’t need it for family members working for you. 

How Much Does Workers’ Comp Cost?

The national average cost of workers’ compensation is $1.07 per $100 of payroll. This figure includes payments for:

  • Premiums and deductibles to private insurers and state funds
  • Benefits and administrative costs made by self-insured employers 
  • Special funds, like second-injury funds

As a small business owner, your workers’ compensation insurance costs are ultimately determined by your:

  • Payroll: Costs are calculated per $100 of payroll
  • Location: Which state(s) your team works in
  • Class codes: Based on the injury risks for your employees' type of work and industry
  • Claims history: How many claims you’ve filed in the past and their amount and type
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Do Independent Contractors and Self-Employed People Need Workers’ Comp?

You’re usually not required to carry workers’ compensation insurance if you’re self-employed or an independent contractor without employees. But even if that’s you, having this insurance may still be a good idea. 

For one, your client might require it in their contract. For example, if an apartment complex hires you as an independent contractor to take on some small plumbing projects, they may ask for you to have workers’ compensation insurance coverage for yourself. 

And if you get hurt while moving a water heater, it’s nice to have any ensuing medical bills paid for. Especially since most health insurance won’t cover work-related injuries and illnesses. You’ll also be glad to have some of your lost wages repaid while you take time off to recover. 

Who Needs Workers’ Compensation Insurance the Most?

Construction, transportation and warehousing and government contractors need workers’ comp the most. That’s because the National Safety Council's latest data shows these industries as being the most dangerous based on the number of deaths from workplace accidents in 2021. Here are the top ten most dangerous:

Industry Deaths Non-fatal injuries
Construction 986 72,800
Transportation and warehousing 976 122,700
Government 461 272,400
Agriculture, forestry, fishing, and hunting 453 17,100
Other services 383 20,400
Manufacturing 383 137,000
Retail trade 263 156,000
Leisure and hospitality 243 80,900
Professional and business services 242 73,200
Wholesale trade 177 54,000

What Are the Benefits of Workers’ Comp Insurance?

Workers’ comp is good to have because it provides you and your employees with financial security when a worker gets hurt or sick from their job. Here’s a closer look at how you both benefit from an insurance policy. 

Workers’ Comp Benefits for Workers

  • Speedy care: Employees quickly receive the benefits they need without going through a potentially lengthy and costly legal process.
  • Medical treatment: Generally, workers’ compensation insurance covers costs for doctor visits, hospital stays, surgeries, medications, physical therapy, and other necessary medical services.
  • Wage replacement: Insurers usually send bi-weekly benefit checks that are 66.6% of the employee's average weekly wage. Because it’s a benefit and not a paycheck, no FICA taxes are taken out.
  • Disability benefits: Provides ongoing disability benefits to help cover continuing expenses and financial support for employees who have a permanent disability.
  • Vocational rehabilitation: Offers job training and placement services to help employees return to work after an injury or illness.
  • Funeral expenses: Can cover the funeral and burial expenses (up to a limit) as part of the death benefit. May also pay surviving spouse and children a portion of the deceased worker’s salary for up to several years or even as long as the spouse is alive and unmarried—depending on the workers’ compensation laws in your state.

Workers’ Comp Benefits for Business Owners

  • Legal protection: Injured workers receiving workers' compensation benefits usually can’t sue you for damages related to the injury or illness.
  • Employee retention: Having a policy shows you care about the well-being of your workers, helping improve morale and reduce turnover.
  • Compliance: In most situations, you’ll need to have workers’ comp for your employees to avoid state fines and penalties. 
  • Cost control: You pay more predictable premiums that your business can budget for, instead of having to cover medical expenses, lost wages, and other related costs for your employee.

FAQs About Workers' Comp

What’s the difference between workers’ comp insurance and a business owners policy?

Workers’ comp covers your employees if they get hurt or sick during work hours, while a business owners policy doesn’t cover workers. Instead, it bundles other types of liability and property insurance products into a single insurance package. A business owners policy can offer protection for things like customer injuries, business property damage by wind or vandalism, and lost income when a fire closes your shop for weeks. 

What happens if you don’t comply with workers’ compensation state laws?

You could face heavy fines and penalties. For example, California can put you behind bars for up to a year, give you a fine of $10,000 or more, and hit you with penalties of up to $100,000 for not carrying workers’ compensation insurance when needed. 

What is the workers’ comp claim process like?

The process starts when an injured or sick employee reports what happened to their employer. The employer files a workers' compensation claim with their insurance provider or the state workers' compensation agency. The claim needs to include information about the employee's injury or illness and the events leading to it.

From there, the insurer investigates the claim to see the extent of the damage and if the employee's injury or illness is covered under the workers’ compensation policy. The employee can start receiving their workers’ comp benefits once the claim is approved. 

The Best for Your Employees, the Best for Your Business 

Your employees deserve the best coverage, and Hourly makes it easy for you to give them just that. We use an affordable, pay-as-you-go workers’ compensation system in tandem with an automated payroll service, helping you conveniently pay and cover your employees without breaking the bank. 

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