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Workers’ Compensation: Definition, Working, Importance, and More
Last Updated on: November 7th, 2024
Knowing the different legal requirements and regulations that may apply to your business is essential as a small business owner. One of the more confusing topics is workers’ compensation insurance, which is often required for companies with employees.
But what if your business doesn’t have any employees? Do you still need to purchase workers’ compensation insurance? Read on to learn about workers’ compensation insurance and who needs it.
What Is Workers’ Compensation?
Workers’ compensation insurance covers medical costs and lost wages if an employee becomes injured or sick while working in connection with their job duties. It can also provide death benefits in some cases.
Generally, employers are required by law to carry this type of insurance to protect their workers should they get injured or become ill while working.
Worker’s compensation includes healthcare benefits, medical costs, income for lost wages, disability pay, training, and more. Mainly, the state governments in the US consider it mandatory for companies to offer workers’ compensation. However, this does not apply to all states. For example, workers’ compensation insurance is not mandatory in Texas.
Basically, after employees accept workers’ compensation benefits, they waive away the right to sue their employer if they face damages. However, one must not confuse workers’ comp insurance with unemployment benefits and disability insurance.
Worker’s Compensation: How Does It Work?
Generally, under the workers’ comp program, a worker who suffers from an injury or if a worker becomes ill due to workplace conditions, is eligible for cash benefits or medical care. Apart from that, this insurance also helps employees while they are out of work. The following are some of the major benefits of workers’ compensation insurance:
- Replacement of partial wage.
- Coverage of temporary and permanent disability.
- Coverage of medical costs and care reimbursement for healthcare services.
- Access to occupational therapy and rehabilitation.
- It also offers displacement benefits. This includes offering training to employees as well as skill enhancement.
- If the worker passes away due to their job, the insurance also offers compensation to beneficiaries.
Generally, private insurance companies mostly pay for workers’ compensation programs. This happens because individual employers pay premiums for the same. Basically, there is a Workers’ Compensation Board in every state. Its job is to oversee program implementation and check whether there are disputes.
On the other hand, there is also a presence of Federal workers’ compensation programs. These programs also cover federal and energy employees. In addition to that, the Black Lung Program (also a Federal Program) offers benefits to coal miners and their dependents. Here, there are death and disability benefits for coal miners.
What Are The Benefits Under Workers’ Compensation?
Generally, workers’ compensation benefits and their requirements change from state to state. Hence, you might not get some benefits in certain states. For example, in some states, there is no mandate for coverage for small businesses.
On the other hand, there are different requirements for various industries. If you want to get a summary of workers’ compensation requirements for each state, you can check out the National Federation of Independent Business (NFIB) website.
The following are the major workers’ compensation benefits you need to know about:
- Payment for lost wages of an employee. However, the employee gets a lesser amount than the total salary (generally, two-thirds).
- Coverage of temporary total disability. Here, while the employee recovers, the insurance provides compensation.
- In many cases, compensation plans offer medical expenses coverage. This happens as a direct result of employment.
However, by agreeing to workers’ compensation, a worker gives away the right to sue the employer in case of negligence. As a result, this concession helps both the employer and the worker. Since the worker gets guaranteed compensation, they give up further recourse.
On the other hand, employers agree to a certain degree of liability while avoiding the greater liability of a lawsuit.
Who Needs Workers’ Compensation?
Typically, businesses with one or more full-time employees are required to purchase workers’ compensation insurance. However, the exact laws vary from state to state, so it’s essential to check the specific requirements in your area.
For example, some states require businesses with three or more employees to buy workers’ comp insurance. Many states allow sole proprietors without employees to opt out of purchasing workers’ comp insurance as long as they don’t hire anyone else while doing business.
Insurance companies like Cerity cover small businesses starting with simple policies, month-to-month pricing, and no sneaky fees.
Do Small Business Owners Need Workers’ Compensation?
In most cases, if you do not employ other people, you will not be required to carry workers’ comp insurance. As such, if you operate as a sole proprietor and do not hire any additional help, you would not typically need to purchase such insurance. However, there may be certain exceptions depending on your situation.
If you employ subcontractors or independent contractors, these individuals may not be considered “employees” but could still be held liable for injuries suffered on the job. Additionally, specific industries such as construction are subject to unique rules regarding workers’ comp even when there aren’t employees involved. It’s best to contact your state’s Department of Labor to determine if there are any unique rules in your case.
Do I Need Workers Comp For Part-Time Employees?
Another consideration is whether or not you’re employing part-time or seasonal employees. While you may not need workers’ comp insurance if you’re not employing full-time staff, many states still require businesses to carry workers’ comp insurance for their part-time employees. The exact rules vary from state to state.
Final Thoughts
Ultimately, whether or not you need workers’ compensation insurance as a small business owner depends on your particular circumstances and the requirements of your state. Although it might seem unnecessary, remember that having proper protection in place can save you time and money if someone gets hurt while working for you.
It’s always a good idea to consult with an attorney or accountant to ensure you understand your options before making a decision. And, if you ever have questions or concerns about workers’ compensation, reach out to Cerity or your local Department of Labor office to speak with someone directly who can provide you with the information you need.
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