What You Need to Know About Workers' Compensation


Workers' compensation insurance may seem like just another small business expense, but it's actually one of the most important investments you can make in your employees. Not only will it help protect you from various lawsuits related to staff members getting sick or injured on the job, it's also the right thing to do as a business owner.

Aside from a few exceptions, workers' compensation—otherwise known as "workers' comp"—is mandatory by law. While each state has its own regulations, it's important for business owners to understand the basics of how workers' compensation works, what it includes and who it protects. Let's break it down.

General Overview of Workers' Compensation Insurance?

Workers' compensation is a type of insurance that can provide coverage for medical expenses and lost wages of employees who get sick or injured on the job. These tax-free benefits are generally paid out to staff regardless of who's at fault. By providing your employees with workers' compensation benefits you're often protected from employee lawsuits pertaining to sickness or injury.

The definition of “employee" may vary from state to state, but usually includes uninsured contractors and subcontractors. In some cases, staff who are immediate family members of the owner or who work only on commission may be exempt. Some states only require workers' compensation if the business has at least three, four or five employees.

What Kind of Injuries Are Generally Covered?

Workers' compensation covers certain costs related to injuries sustained in the workplace:

  • Work-related accidents
  • Violence in the workplace
  • Stress-related mental injuries such as PTSD
  • Occupational illnesses
  • Repetitive stress injuries

What Benefits Does Workers' Comp Include?

Once your sick or injured staff member files a workers' compensation claim, they can receive funds to help pay for their medical treatment and recover their lost income until they return to work. Some other eligible expenses may include:

  • Physical therapy and related equipment
  • Vocational rehabilitation such as training or certifications that can help staff assume a new role when they return to work
  • Hospital and emergency room visits, doctor appointments and medications
  • Funeral expenses
  • Compensation for immediate family and beneficiaries in case of death

General Liability and Workers' Comp Insurance

It's important to distinguish general liability insurance from worker's comp insurance, since both policies deal with claims related to bodily injuries. But while worker's comp provides benefits to employees, general liability helps protect you against claims from third parties. For example, if a customer fell at your shop and broke their leg, general liability would handle their claim for medical bills. It can also cover costs related to other claims such as:

  • Property damage
  • Slander
  • Libel
  • Advertising injury
  • Trademark penalties

Unlike worker's comp, general liability isn't usually mandatory by law. However, both are still smart investments to help limit headaches down the road, including litigation and possibly bankrupting your business.

How Much Is Workers' Compensation Insurance?

You may be wondering about the workers' compensation insurance cost to your business. As with any other kind of insurance, the amount of your premium may vary based on the nature and size of your business, its location and any potential risks.

Your costs are typically determined by the following factors:

  • Your total payroll. The higher your total payroll is, the more workers' compensation premium you can expect to pay.
  • What kind of work your employees do. Your business will be assigned a numeric classification code from a standardized list of industries, which is then used to recommend a baseline rate. For example, construction work is perceived to have a higher risk of physical illness or injury than accounting or administrative duties, so it will likely result in a higher premium.
  • Your workplace location. If your business is located in a highly regulated, worker-favoring state, you can expect to pay higher premiums than in other regions.
  • Your business history. Is your company brand new? Do you have a history of previous claims? In these cases, your workers' comp costs could be higher, especially in your first few years of business. But if you have been in business for years and can show no claims, therefore making a strong case for a safe workplace, you could benefit from reduced premiums.

It's important to remember every state has its own regulations and selecting the right workers' compensation coverage for you can require assistance, especially if your business is crossing multiple state borders. For the best, most cost-effective solutions, consider getting the help of an independent insurance agent. Connect with us to find what would work best for you.