
Published January 29, 2021 • 3 minute read
Accidents happen. Even with comprehensive safety policies, one of your workers could sustain an injury and be unable to work. That’s where workers’ compensation comes in. Also known as workers’ comp or workman’s comp, this type of insurance policy covers certain costs associated with workplace injuries, including medical care, lost wages, and rehabilitation. If a worker dies as a result of the injury, it may also pay for funeral expenses.
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.
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:
Some states do not require workers’ compensation for businesses with few employees.
Depending on the state in which your business operates, you may acquire workers’ compensation from either an insurance company or state-run agency.
Note that not all policies apply across state lines, so if you operate in multiple states, you may need several policies.
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.
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.
Learn from the pros about risk-mitigation, document tracking, and more, with expert articles from BCS.
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