What does workers compensation cover for employees and why do you need it? Here's a quick answer for new business owners exploring their options.
If you're starting a new business with employees, you'll soon run into workers compensation insurance. Although it is the law for most companies and organizations to provide coverage for injured workers (with a long list of exceptions), how you obtain this insurance is governed by each state. If you're in the beginning stages of hiring employees and wondering what workers compensation covers, we're going to help you define answers and a course of action.
It's important to note that in this post, we are specifically addressing small business owners who live in states where they must find private insurance coverage. If you don't know whether the state your business is registered in offers a workers compensation program, you can check the Department of Labor's website to find an official in your area.
What does workers compensation cover, and why is it important to find coverage?
For small business owners, workers compensation is usually seen as another overhead expense that doesn't provide much benefit. That's not true, however. This type of insurance can save you a lot of money if an employee gets hurt on the job.
In exchange for agreeing to the terms of employment (which includes the business's workers compensation insurance policy), employees forfeit their ability to sue due to a work-related injury. They also have the added benefit of knowing that, if they're hurt on the job, their medical bills and part of their salary will be covered. This coverage protects small business owners from sinking under the costs of a hefty lawsuit, penalties from the state for non-coverage, and having to cover the medical bills out of pocket.
The costs of your policy also depend on the nature of your business. For employees that work on a dangerous loading dock, for example, the risk of serious injury is higher. It will be lower if you run a bookstore or department store.
What does workers compensation cover—the exceptions you should know about
Generally speaking, most employers who run a business with at least one employee, outside of partnerships and contractors, need workers compensation insurance. Every state keeps their own rules and regulations, so the laws will differ slightly from state to state.
However, if you know you need to attain an insurance policy through a private source, there are a few widely accepted exceptions to coverage for employees.
For instance, no employee is "automatically" eligible for workers compensation, even if they're hurt on the job. Those rights may be denied if:
- The employee self-inflicts wounds on the job or is injured as a result of a fight they started.
- The employee is injured while committing a crime (such as breaking into the office at night).
- The employee is injured while not "on the job" or not engaging in work-related activities.
- The employee is injured while violating a company policy.
- The employee is injured as a result of intoxication or drug use.
But what does workers compensation cover, excluding the examples above?
Typically, your insurance policy will cover your employees for work-related injuries or illness. That means both at on- and off-the-job locations. For instance, if your employee is on a business trip and suffers an injury, he's covered. A car accident while picking up take-out for the office? Covered. Fell down the stairs at a business social event? Covered (unless intoxicated).
The coverage for work-related injuries also spans many situations and conditions. It may be an accidental injury at the moment, a chronic injury that forms over time, or an illness that develops as a result of the work environment. If the employee can prove that their injury, illness, or condition was caused by their working conditions, they will be covered by workers compensation.
Find a workers compensation policy that covers all situations (like having multiple locations in different states)
Don't forget that workers compensation regulations change from state to state. If you open another location in a neighboring state, you will need to work with your insurance agency or state programs to attain specific coverage for employees in those locations.
Are you midway through the development of a mixed-use property? Starting a new business? Unsure of all your insurance needs? Give a Pekin Insurance agent a call and they’ll walk you through the various levels of coverage and enhancements available to you, or request a quote online.
Are there any other types of insurance that have been invaluable to the success of your business? Share your thoughts in the comments!