Do I Need Workers Compensation Insurance for My Business?
What is workers’ compensation insurance, exactly, and do you need it for your business? Workers’ compensation insurance provides medical and partial wages to those who suffer an accident or become ill at work or due to a work-related incident. In order to receive these benefits the employee must show that their injury or illness is related to their job duties. For example, if a worker that has an injury that is caused by lifting heavy, slipping, or any other injury they are able to use this insurance to recover. If the injury occurs outside of work then the workers’ compensation would not apply and won’t cover the injuries.
If you have a business, you are required to carry workers’ compensation for all of your employees, unless your operations are located in Texas. Here’s more on what you need to know to about workers comp.
What Does Workers’ Compensation Cover?
- Medical expenses such as ER visits, ambulance transportation, testing and other hospital bills
- If an employee suffers a work-related injury or illness which prevents them from earning their wages, workers’ comp will reimburse the employees for the lost wages and medical bills.
- If a work injury or illness results in death, workers compensation insurance will cover funeral expenses and, in some cases, some pays a death benefit to the family.
- In cases involving a lawsuit, workers’s compensations will help pay for defense and court expenses.
How Much Does Workers Compensation Cost?
According to the National Council on Compensation Insurance the average cost is around $400 to $2500. Every business workers’ compensation insurance varies according to different factors that affect the cost of insurance. Some employees have riskier jobs than others which also means that riskier jobs have higher rates compared to others. For example police officers, firefighters and electricians have a higher workers’ compensation rate compared to an accountant or financial advisor because they are more exposed to risk and on-the-job injury. Below is some of the average workers’ compensation premiums by industry:
- Construction: $3,264
- Landscaping: $2,769
- Cleaning Services:$1,813
- Retail: $1,069
- Real estate: $610
- Finance and Accounting: $396
Another factor that affects your workers compensation quote is the annual payroll of the business. The more claims you file increases the cost of workers compensation insurance because your business will be seen as a risk.
The more employees that a business has means that they have to pay more workers’ comp. For example a workplace with 5 employees would have an average cost of $777 while a workplace with more than 10 employees would have an average cost of $1983.
Lastly the location can also affect the quota as certain states have their own requirements for the workers’ compensation insurance. California has the highest workers’s compensation premium rate with a rate of $3.48 for every $100 in paid wages while North Dakota has the lowest with a rate of $0.88 per every $100 in paid wages.
Is Workers Compensation Mandatory?
Workers’ compensation is mandatory in each state but there are different benefit requirements in every state. If an employer decides to ignore the state requirements, the business is put in a high financial risk group because there is a chance that the employer will face a lawsuit for work injuries and will be fined for breaking the law.
When an employer has workers’ compensation insurance it protects them from a lawsuit because the law protects the business if they provide their employees with benefits for work-related injuries and/or illness.
However, it is still possible for an employee to sue an employer, even if they were able to utilize workers compensation benefits for injuries or illnesses. In those instances a business’s general liability policy would cover the legal fees.
Some businesses can continue to operate without workers’ compensation. A business would not need to get workers' insurance if they are sole protectors or if they are located in Texas where insurance for workers is optional.
Businesses made up of employees who are the business owner’s immediate family and businesses that do not meet the minimum number of employees required by the state are exempt from needing workers compensation insurance.
Some states require that the employer purchase the workers’ compensation insurance from a state fund. These states include North Dakota, Ohio, Washington and Wyoming
What Are the Penalties for Not Having Worker’s Compensation?
Workers’ comp is required by the state (except Texas where it is optional) and business owners who don't have this insurance could face penalties ranging from fines to jail time. The penalty depends on the state of residence so we need to make sure the rules that they apply. Some states have more severe penalties to other states that could result in a fine, prison or both.
Most Severe punishments:
- In California, it is illegal to not provide workers’ compensation to their employees. The punishment is up to a year in jail and fine of up to $10,000.
- In Illinois, the employer who does not provide its employees with insurance is subject to a punishment of $500 for every day that they did not comply with the rule with a cap of $10,000.
- In New York, the punishment can be categorized as a misdemeanor or even a felony. With the fines ranging from $1,000 to $50,000 plus an additional fine of $2,000 for every 10 days without coverage.
- In Pennsylvania, a violation of failing to protect the workers is a third degree felony, which could result in a $15,000 fine and up to seven years in jail.
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