What Is Workers' Compensation?

The policy should apply if the injury occurs at work or while the employee is acting on behalf of the employer, such as while running a work-related errand. In addition to run-of-the-mill physical injuries, it may also cover injuries from violence, terrorism and natural disasters, as well as illnesses resulting from workplace exposures.

While some business owners think their commercial general liability (CGL) or employee health insurance will cover these expenses, most policies exclude employee workplace injuries. If your employee is hurt and you lack workers’ compensation coverage, they may be left with no choice but to sue you or bear the financial burden themselves.

Workers’ compensation laws vary between states, so it may be beneficial to work with local experts to weigh their insurance needs and determine what requirements apply. Nearly all states require most businesses to hold a policy to protect their employees, but the exact requirements, exclusions, and fines for noncompliance vary.

Who Needs Workers’ Compensation

Most businesses are required to carry workers’ compensation. However, it is particularly important if workers perform tasks that increase the risk of sprains and strains, which account for over 30 percent of workplace injuries. Common causes include manual labor and material moving. Slips and falls are the second most common cause of workers’ compensation cases, and these can occur in virtually any industry. 

Many states require that employers provide coverage for full-time employees. However, some exclusions may apply, especially for:

• Casual Workers
• Employees Working on Commission
• Family Members
• Part-Time Workers
• Farmhands
• Real Estate Agents
• Insurance Agents
• Business Owners

Some states do not require workers’ compensation for businesses with few employees. 

Where to Get Workers’ Compensation

Depending on the state in which your business operates, you may acquire workers’ compensation from either an insurance company or state-run agency.

• Private companies frequently offer more competitive rates and enhanced customer service.
• State-funded programs may be able to provide coverage if a private company rejects your business.
• Competitive state-funded workers’ compensation acts as an alternative to private carriers.
• In several states, businesses must purchase workers’ compensation through a monopolistic state program, which means they cannot shop around for other policy options. 

Note that not all policies apply across state lines, so if you operate in multiple states, you may need several policies.

How Do Businesses Benefit From Workers’ Compensation?

State laws typically require that companies hold workers’ compensation policies, but there are other potential benefits to a business, beyond compliance. A policy can help ensure your workers get the care they need should an incident occur so that they can return to their role or find a new one.

It can also limit your company’s liability in lawsuits resulting from workplace injuries or illnesses. When employees receive compensation, they generally forfeit their right to sue. Without coverage, an employee may file a lawsuit to recoup medical expenses and lost income.

That being said, workers’ compensation doesn’t safeguard you from all potential issues. It will not protect against employee lawsuits for gross negligence, discrimination, malicious intent, wrongful termination, failure to promote, and similar claims. It also won’t cover costs if the injury was intentional, emotional rather than physical, resulted from a fight caused by your employee, occurred during your employee’s commute, or happened while your employee was intoxicated.

Do I Need Workers’ Compensation For Contractors?

Whether you’re obligated to provide workers’ compensation for contractors depends on state laws. However, to avoid costly fines, you should verify that your contractors don’t actually qualify as employees according to state workers’ compensation laws. These laws vary between states and do not always follow the same guidelines as the Internal Revenue Service (IRS), so it’s important to pay careful attention to the wording to ensure you stay in compliance.

If your contractors are not covered by your policy, contractually requiring that they hold their own workers’ compensation coverage can limit your exposure. Nearly all outside vendors that operate as full-fledged businesses should have policies in place to protect their employees. You should request certificates of insurance (COIs) for their policies to ensure everything is up to date and you’re protected if one of their employees is injured while working for you.

BCS can help you maintain the COIs for your vendors’ workers’ compensation policies so that you stay in compliance with state laws and protect your interests in case an accident occurs. Contact us to learn more.