5 Things Business Owners Should Know About Workers’ Compensation Insurance


Adhering to workers’ compensation laws is a must for most businesses, so business owners need to know their obligations regarding such laws. According to the National Federation of Independent Business (NFIB), “the laws vary from state to state”, so consulting a professional about the relevant state laws may be the best strategy for an employer. However, certain details may apply to businesses in different states, and exploring such details could be helpful.

Understanding Workers’ Compensation Insurance

The first thing a business owner should know about workers’ compensation insurance is what this kind of things the insurance covers. Essentially, this is the type of coverage that compensates a worker who has been injured at work or on the job. Such compensation includes coverage for medical costs, as well as rehabilitation costs for the injured person. Additionally, coverage may extend to some of the wages that are lost while an injured employee cannot work. In cases of death, the immediate family members of the deceased may receive coverage for funeral expenses and death benefits through workers’ compensation insurance.

How Workers’ Compensation Insurance Protects People

This type of insurance protects both employers and employees. Instead of being involved in a major lawsuit against a company, an employee who is injured can focus on healing and rehabilitation. Instead of dealing with a major lawsuit filed by an employee, an employer can generally be confident in the fact that workplace injuries will be covered by workers’ compensation insurance.

Businesses That May Be Exempt From Carrying This Coverage

Most businesses are required to carry this kind of coverage for their employees. As discussed in an article at Attorneys.com, the state laws vary in regard to which employers may be exempt from paying for workers’ compensation insurance, but states may “offer exemptions to some very small businesses.” In certain states, businesses may be exempt if they have a number of employees ranging from one to five individuals (the exact number will depend on the law in a particular state).

Certain job descriptions may enable an employer to abstain from carrying workers’ compensation coverage. Such job descriptions might include domestic staff, employees with schedules that are irregular, sales people who earn only commission, real estate agents, relatives who live with the owner of a business, and individuals already covered by federal programs. Independent contractors are not generally required to carry this coverage for themselves, nor are the businesses that hire them required to carry the coverage for them.

The Penalties for Not Carrying This Coverage

Businesses that do not carry workers’ compensation insurance, but are required to may face stiff penalties. According to an InsureOn article, a business in the state of New York that fails to carry the coverage might face a penalty of up to $50,000. Most businesses will find that simply carrying the coverage is preferable to paying such fines.

The Cost of Workers’ Compensation Insurance   

As with many of the other details related to workers’ compensation insurance, the cost of this coverage varies among different states. This cost is decided by the appropriate board in each state. Typically, a formula is used to determine the cost for employers, and the formula may be based on factors such as percentage of payroll and classification risk.

Most businesses must cover workers’ compensation insurance for their employees. Knowing the specific coverage laws that apply to a business is an important responsibility. The best thing that a business might do to ensure that it is legally compliant is to consult a professional who can provide relevant advice.