Workers’ compensation insurance is, in fact, one of the most important things your startup must have. You’ll also find that it’s most likely mandatory in your state.
In this article, we look at what startup owners need to know about workers’ compensation insurance.
What is workers’ comp insurance?
This type of insurance provides wage replacement and medical benefits to your employees who are injured in the course of duty. It is provided in exchange for your employee’s right to sue you. They now have limited rights to do so.
While you are required to ensure that your startup’s workplace is safe, accidents do happen. Worker’s compensation ensures that your workers get the medical care they need and wages if they can’t work.
This insurance kicks in regardless of who caused the accident or illness.
Each state regulates worker’s compensation and determines what injuries and ailments are covered, how they’re evaluated, how medical care is delivered and the amount of benefits your employees receive.
Not having this insurance leaves you unprotected. If you don’t have it, you’ll find that you will have to pay these expenses out of pocket and pay penalties to the state.
| Talk to us about how our back-office services can help mitigate your business risks. |
Are you required to purchase it?
Not all businesses or startups need to purchase worker’s comp insurance.
First, you want to check with your state laws. There are several things that determine whether or not you have to purchase it:
- The number of employees
- Your type of business
- The kind of work you do
- The type of workers you have – oftentimes farmworkers, domestic employees, and seasonal workers are excluded
- If you’re a sole proprietor, worker’s comp may be optional unless you have employees who aren’t owners
- Some startups employ family members only – in this case you may not need coverage.
Check with the United States Department of Labor for your state’s office.
How do you get worker’s comp?
Generally, businesses buy worker’s compensation insurance separately from their business policy.
Your state determines who can sell this insurance, so you want to check with your state for providers. It may be that you buy it from the government, or you may buy it from private companies.
For states that allow you to buy it from private insurance companies, do your research. Find a reputable provider who has a good business rating.
How much are premiums?
Again, this info comes from the state. Your premiums are calculated based on two things: your payroll (number of employees) and your industry classification code.
If your startup engages in dangerous activities, your premiums will be higher. Or, if you have a high-risk location, your premiums are likely to be higher too.
In addition to your premium costs, you are also liable for deductibles as well as any administrative costs for handling claims.
Once your startup has been operating for a while, your premiums may go up or down depending on your number of claims just like other forms of insurance.
To conclude
Bottom line – most businesses must buy worker’s compensation insurance because it’s a law.
Even if your startup is exempt, you would benefit from this type of insurance if you don’t want to be liable for wages, medical care and legal issues such as potential lawsuits if an accident happens. This could be a devastating financial loss for your startup.
If you’re on the fence trying to decide if you want to purchase this type of insurance, check out this cost calculator. It gives you an overview of what you might be liable for in the event of a workplace injury, illness, or accident.
