Every business is required to carry numerous types of insurance designed to protect the business, its employees, and consumers. One of the most important, yet least understood, of these insurance policies is workers compensation insurance. This critical business insurance is mandated by law for any business with employees in every state except Texas.
This article covers some of the basic concepts associated with workers comp insurance so that you can make an informed decision when selecting a workers comp policy for your business.
What Businesses Need Workers Compensation Insurance?
As a general rule, any business that has employees (whether it be one employee or 100) is required by law to maintain a workers comp policy. You can find out more about the specific insurance requirements for your state by contacting your state insurance department or a licensed insurance agent specializing in business insurance policies.
There are a few exceptions to the workers comp insurance requirement including:
- Sole proprietors and partnerships. Most states waive this insurance requirement for businesses where the only employees are owners of the company.
- Employee threshold. Some states do not require businesses with less than a specific number of employees to carry workers comp insurance.
- Independent contractors. If a business does not have employees–relying instead on independent contractors for daily operations–the business may not be required to carry workers comp insurance.
These are a few examples of businesses that may not need workers compensation insurance but the best way to confirm what small business insurance requirements are mandated for your business is to consult with a licensed insurance agent.
How Are Premiums Calculated?
The state where your business operates classifies all employment into specific “classification codes” based on the nature of the job. The classification code provides a predetermined value for each job based on the risk of injury and that value is then multiplied by the payroll for that position to arrive at a rough premium for the insurance policy.
Each state handles the above base calculation differently but most states adjust premium rates based on a business’ “experience rating”, or prior loss history as it relates to employee injuries and workers compensation claims.
What is Actually Covered by Workers Compensation Insurance?
Every state is different in terms of the benefits and coverage extended to injured employees but in general, workman’s comp insurance covers employee injuries that occur on the job while the employee is performing work for the employer. This also includes travel for the business (excluding the employee’s commute to and from work).
Some policies also provide coverage for injuries sustained as a result of natural disasters, workplace violence, and occupational illnesses. The idea behind workers compensation insurance is that these coverages be made available to injured employees regardless of fault.