What Every Small Business Should Know About Workers Comp

The basics of employee insurance

The thing most small businesses overlook when it comes to employee insurance is this: they need it. Unless you’re in Texas, at least. The other 49 require small employers to cover their employees’ lost wages and/or medical expenses in case they are injured on the job.

Different states have different coverage requirements and prescribe what percentage of an employee’s salary must be paid in the event of a work-related injury. Also, some states allow small businesses of a certain size to self-insure their employees. This means that if a small business is small enough, it can legally choose to pay claims directly out of pocket. So if you only have a handful of employees, it may not be necessary to actually get a policy from an insurance company.

The confusion doesn’t end there. Some states do not require coverage for certain types of workers. Often the owner of the business does not need coverage, as do unpaid volunteers and domestic workers.

Small Business Comp Policy Variation

While there is a lot of variation from state to state, benefits packages are fairly standardized from state to state. Almost all basic packages cover: medical treatment, loss of wages and rehabilitation. Liability coverage is also quite common and protects the policyholder from those pesky ambulance chasers.

What options are available to small businesses looking for an employee policy?

Surprise again, it gets a little more complicated. Each state has a regulatory agency that oversees workers’ compensation insurance. Most are regulated by the National Council on Compensation Insurance. Others have state-specific organizations that serve the same purpose. N. Dakota, Ohio, Washington, W. Virginia, and Wyoming provide workers’ compensation insurance through a monopolistic state fund.

If you’re in one of the five states with a single fund, you’re done shopping for a carrier. However, you must purchase your employer’s liability insurance through a separate commercial insurer.

If you’re in any of the other 45, you usually have a choice of the country’s largest insurers. Liberty Mutual, Travelers, Kemper and The Hartford are the most common.

If you don’t like the big name insurers, you may have two other options: self-insurance, as mentioned earlier, and state insurance pools. State pools tend to attract the companies that are too risky for big insurers. This is usually a last resort for companies that can’t get coverage anywhere else.

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Almost all states, 47, have the option of self-insuring. However, this option requires the employer to assume all risk for work-related injuries.