What Is Workers' Compensation Insurance?
Workers' compensation insurance (workers' comp insurance) is a mandatory type of insurance carried by many businesses. The insurance typically covers medical costs and a portion of lost wages for an employee who becomes injured or ill on the job. It also protects companies from being sued by employees for workplace conditions that can cause an injury or illness. Workers receive benefits regardless of who was at fault in the accident. If a worker is killed while working, workers comp provides death benefits for the worker’s dependents.
Carrying Workers' Comp Insurance
Workers' compensation insurance is required by law in almost every state. Employers are required to carry workers' compensation insurance to cover employees in case they are injured on the job. Much like personal auto or fire insurance claims, workers' compensation claims are handled by an adjuster from the insurance company and the company pays out any benefits.
Where Do Workers' Compensation Insurance Law Come From?
Workers compensation rules are established by statutes in each state. State laws and court decisions control the program in that state and no two states have exactly the same laws and regulations. Each individual state dictates whether workers compensation insurance is provided by state-run agencies and by private insurance companies or by the state alone. States also establish how claims are to be handled, how disputes are resolved and they may devise strategies, such as limits on chiropractic care, to control costs.
If I'm a Small Business Owner, Do I Have to Purchase Workers' Comp Insurance?
Generally speaking, yes. However, in most states sole proprietors and partnerships aren’t required to purchase workers compensation unless and until they have employees who aren’t owners. Most states will allow sole proprietors and partners to cover themselves for workers comp if they choose to. Some states don’t require employees to be covered if they are paid solely on commission.
Many states exempt employers with only a few employees from mandatory coverage laws. The threshold number of employees that triggers mandatory insurance is either three, four or five, depending on the state.
Who Is Considered an "Employee?"
- Family Members: In some states, business owners immediate family members—parents, spouse and children—who work for the firm may not have to be counted as employees for purposes of determining whether you must have workers comp insurance. These exceptions usually do not apply to other family members, such as sisters, brothers or in-laws.
- Contractors: Under some laws, independent contractors are not considered to be your employees. However, for the purpose of workers' comp insurance, most states will treat an uninsured contractor or subcontractor or employees of an uninsured subcontractor as an employee—meaning you may be liable if he or she is injured while working for you.
Protecting Your Business
Regardless of whether insurance is required and regardless of how few employees you have, if an employee protected by the state statute is injured or killed in the course of working for you, you may be legally liable. A claim for a serious employee injury could bankrupt many small businesses. Insurance, through the payment of premiums for workers comp coverage, provides a predictable cost for handling this risk.
Purchasing Workers' Comp Insurance
Each state has its own rules about where employers may buy workers comp insurance. In a few five states and two U.S. territories (North Dakota, Ohio, Puerto Rico, the U.S. Virgin Islands, Washington, West Virginia, or Wyoming) the law requires employers to get coverage exclusively through state-operated funds. all employers must buy their workers comp insurance from a state monopoly insurer, known as a state fund.
In a number of other states, insurance may be purchased from the state fund or from private insurers. In the states that have them, state funds may serve as an insurer of last resort for businesses that cannot find coverage from a private insurer.
Seeking Legal Advice
Be sure to speak with a workers' compensation attorney if you have questions or believe you are not getting fair compensation. If you believe your injury was caused by employer negligence or an intentional act, you may want to consider filing a lawsuit. A great first step is to have a workers' compensation attorney review your claim for free.