How does Workmans’ Comp insurance work?
Workers’ comp insurance can take care of you and your staff if one of your employees gets hurt on the job.
This business insurance policy, required in most states, can help cover medical bills and a portion of lost wages while an injured worker recovers. Policies can also help pay for rehabilitation costs to help workers get back to work and death benefits for families in worst-case scenarios.
As an employer, you need to know what your business policies cover. It has some overlap with health insurance and disability insurance, but workmans’ comp insurance is specifically designed to cover workplace injuries and illnesses.
Workers’ compensation coverage can help cover things from the obvious, like falling off a ladder while on the job, to the not-so-obvious, like carpal tunnel syndrome from repetitive movements at work**. Coverage typically includes:
- Slips, falls, equipment injuries
- Repetitive stress injuries that develop over time
- Work-related illnesses
- Mental health conditions (available in most states, but coverage varies)
Note that the injury or illness must be work-related. If your injured worker hurts their back moving boxes in your stockroom, that’s covered. If they strain it playing weekend softball? That’s not on you.
How much does Workmans’ Comp cost?
Many factors go into determining your workers’ comp costs — however, it may be more affordable than you think.
To determine your premium, insurance companies look at your total payroll and charge a rate for every $100 you pay in wages. According to the National Academy of Social Insurance (NASI), as of 2021, the average rate is $1.01 per $100 of payroll.
Keep in mind that these are ballpark figures. Your actual costs will depend on factors like:
- Your industry
- Your location
- Your total payroll
- Your claims history
- Your workplace safety measures
If you’re curious about your rate, use this workers’ comp insurance calculator to get an estimate.
Is Workmans’ Comp required for a small business?
The short answer? Most likely, yes. But it depends on your state laws and your business.
Most state workers’ compensation laws require coverage as soon as you hire your first employee. Some exceptions exist for:
- Very small businesses with less than three to five employees, depending on the state.
- Certain types of workers, such as independent contractors or seasonal workers.
- Specific industries with higher or lower risks.
In some states, business owners are allowed to self-insure. This is when a person or business sets aside resources, usually a pool of cash, to insure themselves against accidents, illnesses or mishaps. However, they must file a workers’ comp exemption with their division of workers’ compensation and proof of these resources.
How to get the most out of Workmans’ Compensation insurance
- Make workplace safety your top priority. This means implementing regular safety training, creating clear safety procedures, and investing in proper equipment and maintenance.
- Ask your insurance provider about available safety programs and discounts that could lower your premiums. Consider whether a higher deductible might make sense for your cash flow.
- Make sure your business is assigned the right classification code. This is a four-digit number that insurance companies use to categorize your business based on its risk level. For example, a general contracting company has a different classification code than an accounting firm because the risk of workplace injury is higher. If you have the wrong code, you could be paying too much for coverage.
