Workers’ compensation insurance protects employees and employers alike. If a worker suffers an injury on the job or develops an occupational illness, the insurance covers medical costs, lost wages, and other related expenses. It also protects employers from potential lawsuits.
In the U.S., all states except for Texas require businesses that meet specific criteria to purchase a workers’ compensation policy. If you’re new to the world of business ownership or management, you should start your search for business insurance by determining whether or not you legally have to obtain workers’ compensation coverage.
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Who Needs Workers’ Compensation Coverage?
Every state in the country has unique laws governing workers’ compensation insurance. Unless you operate in Texas, start with the assumption that you have to provide workers’ compensation if you have employees. Then, search your state’s workers’ comp laws to see if your business is an exception to the rule. A few examples of variations between state laws include:
- Some states allow businesses with six or fewer employees to go without coverage. In other states, your business may need coverage if you have fewer than five, four, three, two, or even one employee.
- Many states have different coverage requirements for the construction and agricultural industries.
- Some states allow qualifying businesses to self-insure.
As previously mentioned, Texas is the lone state that makes workers’ compensation insurance optional for all companies, with some exceptions. Texas business owners that opt out from workers’ comp coverage are called non-subscribers.
Workers’ Compensation for Exempt Businesses
Just because your business doesn’t legally have to have a workers’ comp policy doesn’t mean you shouldn’t. If you run a business in Texas or operate in another state and qualify as an exception or exemption, you should still consider purchasing a policy for the following reasons.
1. You May Spend More Paying Out of Pocket Than You Would if You Had Coverage
One of the most important reasons to have workers’ compensation insurance is to save money. Yes, coverage costs money in premiums, but you face liability for workers’ expenses after accidents and injuries without coverage.
It only takes one incident to devastate your business financially. You could be on the hook for expensive medical bills, ongoing care, and lost employee wages. Without workers’ comp coverage, your business could face irreparable damages you can’t afford to pay. In many cases, the monthly cost of insurance is far less than what you’d owe an employee should a worst-case-scenario incident occur.
2. Without it, You’re Exposed to Lawsuits
Workers’ compensation insurance exists to compensate employees, but it also serves the vital purpose of preventing lawsuits against employers. Workers’ compensation policies serve as a contract between employers and their employees. If the employer provides proper coverage, an employee can’t sue the business owner for bodily injury unless the employer demonstrated gross negligence or acted illegally.
On the other hand, if you choose not to protect your workers with insurance, they have every right to sue. For example, if you failed to properly maintain onsite equipment, leading to a malfunction and injury, or if you didn’t post the required safety warning signs in the workplace, you can be found negligent and held liable for the associated costs.
3. Other Businesses You Work with May Require It
Without workers’ compensation insurance, you could lose potential business. Many companies will only contract with other companies that have workers’ comp insurance. They want anyone working on their project to have coverage to reduce their own liability.
You may also find that the contractors you hire expect coverage. You’re not required to cover them in most states, but offering coverage may open up your options. Also, keep in mind that if you hire out-of-state workers, you have to follow their home state’s workers comp laws and may need to offer coverage.
4. Employees Stay Loyal to Employers Who Care
Good employees are essential to the success of a business. As the owner, you want to build up a loyal pool of workers who stick with you for the long-term. Your role in developing a committed workforce is to show that you value employees by providing benefits like workers’ comp.
Opting for Optional Coverage
Not all businesses legally have to have workers’ comp coverage. Before deciding not to buy a policy, make sure you understand all the potential risks of not carrying this form of insurance.
If you decide to provide this coverage for workers, even if not required by law, be sure to explain this choice to your employees. Ensure they know what the policy covers, what benefits they’re entitled to, and what to do should an accident occur. For example, you should inform your employees about filing workers comp claims, how the process works, what their rights are, and how to appeal if a claim is denied.
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