Anyone starting or expanding a business knows how many hurdles you have to cross to operate legally. From safety regulations to taxes to insurance, business owners have to stay up to date on local and federal laws to remain compliant—and to run a healthy business that values its customers and employees.
Regardless of the size of your business, you’ll need numerous forms of insurance to comply with the law or to protect your assets. Workers compensation insurance, also known as just workers’ comp, is a generally required form of coverage that many new business owners find complicated.
Much of this confusion stems from the fact that states have different laws and policy options for workers’ comp. Also, the price of workers’ comp coverage drastically varies across industries. To clear up any confusion, consider the following common misconceptions regarding workers’ comp:
Misconception #1: All Employers Can Purchase Coverage from Private Insurers
While some states have competitive state funds for workers’ comp, others have monopolistic funds. This difference determines whether or not employers within the state can purchase workers’ comp from a private insurer. States with monopolistic funds (North Dakota, Ohio, Washington, and Wyoming, as well as Puerto Rico and the U.S. Virgin Islands) must sign up for workers’ comp through the state fund.
Misconception #2: Small Businesses Don’t Need Workers’ Comp Insurance
Generally speaking, every business in the U.S. must have a workers’ comp policy, although some exceptions do apply. Some states require all businesses with one or more employees to purchase a policy, while others allow up to about five employees before requiring coverage. You can read about individual state laws and exceptions here.
Misconception #3: Workers’ Comp is Only Important for Dangerous Workplaces
Workers’ comp insurance providers do base rates and premiums on the level of risk associated with an industry and previous claims made by a company. However, even businesses perceived as low risk for injuries do legally need workers’ comp and commonly make claims.
Misconception #4: If an Injury Happens Off-Premise, it Isn’t the Employer’s Responsibility
In certain situations, workers’ comp coverage extends beyond the workplace. If an employee sustains an injury while on the clock or while fulfilling a work-required responsibility, workers’ comp typically covers their medical expenses regardless of where the incident took place.
Misconception #5: All Workers’ Comp Plans Help Cover Employer Legal Fees and Settlements
While some workers’ comp policies do cover the employer’s legal fees and help with settlements, not all plans have these features. Before committing to an insurance provider or policy, analyze the financial coverage offered to employers should an employee not accept a compensation package.
Misconception #6: Employees Cannot Claim Worker’s Compensation For Pre-existing Injuries
Employees cannot use workers’ compensation to treat pre-existing injuries if their work does not affect that injury. However, if their required duties aggravate or worsen the pre-existing injury, they can seek workers’ comp payments. To receive compensation, the employee must have already reported their pre-existing injury to their employer.
Misconception #7: Once You’ve Purchased Workers’ Comp for Your Business, You’re All Set
Purchasing a workers’ comp insurance policy is only the beginning. As a business owner, it’s your responsibility to inform your employees about the policy and to provide the necessary paperwork when incidents occur. To prevent accidents from occurring altogether, you should offer frequent safety training to all employees.
Furthermore, it helps to reassess your policy each year or whenever your business undergoes a major change. For example, drastically expanding our workforce may call for a new workers’ comp policy that better fits your needs.
Setting the Record Straight
Starting or expanding a business comes with a steep learning curve, especially when it comes to insuring every aspect of operations. However, if you take time to research every form of coverage your business needs carefully, you can set your business up for success, even if worst-case scenarios such as on-site injuries come to pass.