How Does Workers’ Comp Work? | Workers’ Comp 101

Workers’ comp insurance helps cover an employee’s medical bills and lost wages and an employer’s legal expenses in the case of a work-related injury. Each state administers its own workers’ comp program through a commission or board that makes sure businesses comply with workers’ comp laws.

Do I need workers’ comp insurance?

All states except Texas require that businesses with employees carry workers’ comp insurance, but the specific requirements and regulations vary by state. If you are an employer, you will likely need to cover all of your employees, but you may not be required by law to carry coverage for yourself as an officer or partner.

However, in certain industries like construction, you often need to show proof of workers’ comp insurance before you can begin work. Many clients and customers will ask to see proof of your coverage, so it’s a good idea to get workers’ comp insurance for yourself as well as your employees.

Also, paying out of pocket for work-related injuries can be financially devastating for a company. Regardless of the laws in your state, to avoid this type of financial loss you’ll need to have coverage for yourself and your workers.

Who benefits from workers’ comp coverage?

Both employer and employees benefit from having workers’ comp insurance.

As an employer, your workers’ comp policy helps protect your company from being sued by employees for workplace injuries, and it keeps you from having to pay directly for employee injuries. This coverage can reduce your risk of significant financial loss in case one of your employees is harmed while performing work duties. Additionally, since workers’ comp is legally required in nearly every state and situation, having adequate coverage and following policy requirements ensures you won’t have to pay fines or even worse – face imprisonment.

As for your employees, they will also benefit since they will receive financial protection for an injury that occurs at work.

How much will workers’ comp insurance cost?

When you purchase a policy for your company, the insurance provider will estimate your workers’ compensation premium. Then, after the policy period is over, your provider will perform an audit to ensure that the estimate was accurate. Your business will receive a refund or pay additional premium depending on whether there were changes in your business’s risk or workforce composition.

There are many factors insurers consider when calculating your premium, but the three main components are:

• The type of business you own
• The size of your workforce
• Your previous claim history

Who regulates workers’ comp?

Each state has a commission or board that administers workers’ compensation. These state agencies typically make sure that businesses comply with workers’ comp laws, collect relevant accident information, and make decisions on cases.

To learn more about the laws that affect your business, you can view this state-by-state comparison of workers’ comp laws. This useful resource is maintained by the National Federation of Independent Business (NFIB) and provides links to each state agency.

What are my workers’ comp responsibilities as a small business owner?

In most states, you have some workers’ compensation employer obligations you must follow:

• Maintain records of any accidents
• Report all accidents to state agencies within a certain period of time
• Inform your insurer of any accidents within a certain period of time

Depending on your state, you will likely need to:

• Provide your employees with information about their workers’ comp rights, benefits, and the claims process
• Inform your employees of the timeline for reporting injuries
• Let employees know that if they do not follow the notification period requirements, they may not be eligible for benefits
• Give your employees all of the necessary forms for reporting injuries as well as your workers’ comp insurance information
• Make sure that an injured employee gets prompt medical attention with an approved provider
• Be sure that the healthcare provider’s report is filed along with the workers’ comp claim by the deadlines
• Confirm that your employee has received either an approval or denial of the claim
• Help your employee return to work by retraining the employee

What should I look for in a workers’ comp insurer?

To find the best workers’ comp insurance for your small business, look for a company that offers:

• A convenient, fast quote process
• A team of insurance professionals who make workers’ comp easy to understand
• Small business savings and expertise
• Insurance with a strong A.M. Best rating

Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation insurance or check your current rate in 3 minutes.