Workers compensation – learn the ropes in a single guide

Workers' compensation provides coverage to employed individuals in the event they suffer from an illness or injury because of job-related responsibilities. Small business owners who employ workers are familiar with workers' compensation insurance, as they are required by law to have it.

While its implementation differs from state to state, there are features that are generally shared by all.

The importance of workers' compensation to a small business

This type of insurance is critical to both a business and its employees. It takes off a major financial burden that an employer and an employee would have faced in case the latter suffers an injury or illness.

A small business owner may face penalties if it does not get this coverage, as this is tantamount to non-compliance. Without this insurance, a small business owner may face penalties and claims that are beyond their financial means. It may eventually lead to the demise of the enterprise.

Incidents covered under workers' compensation insurance

Any injury suffered by a worker in the normal course of their employment with a business is usually covered. This is regardless of whether the business or the worker himself is at fault. The law entitles the injured employee to get all medical treatments that are needed in the course of recovery.

Non-work related injuries are not part of the coverage. However, the medical examination needed to establish if an injury is work-related or not can be shouldered under workers' comp insurance.

Incidents NOT covered by workers' comp insurance

These may include: self-inflicted injuries, injuries that are sustained while being under the influence of alcohol or drugs, injuries sustained in the commission of a criminal activity or while engaged in illegal conduct, and injuries that arise while committing an activity that is against company rules.

Benefits provided by workers' comp

  • Coverage of expenses for medical treatment received
  • Replacement of loss income
  • Cost to retrain the employee
  • Compensation for injuries that are permanent
  • Benefit payments to survivors in case the employee gets killed while working on the job.

Types of employees who are covered

This depends on state where a business operates. States vary when it comes to a business owner's responsibility in providing coverage. Factors usually considered include the number of employees, the type of business, and the type of work involved. 

Types of employees NOT covered

Again, this can vary from state to state. Generally, the following types do not get coverage: owners of businesses, federal employees, volunteers, independent contractors, employees of railroad companies as well as longshoremen.

In many states, the following are also not covered: domestic workers who work part-time, maintenance workers or gardeners who work part-time, workers who perform intermittent work during a year, certain agricultural workers and taxi drivers.

When is an employer required to carry workers' comp?

The timing and situations differ under state laws.

For instance, in New York, a business is required to have it once there is an employer-employee relationship. In Colorado, an employer is required to get coverage when there is one or more full-time or part-time employees. In South Carolina, an employer is required to get coverage once they regularly employ 4 or more employees on a full-time or part time basis.

Who pays the premiums?

The system varies from one state to another. But in all states it is the employer who pays for the premiums.

The employers usually pay in three ways:

  • to an insurance program administered by the state
  • to a company who provides the insurance
  • direct payments to the employees

How costs and premiums are established

How much the coverage will cost an employer is established in several ways.

One way is by the use of occupation codes that reflect the risks that are related to a particular job. Those that are deemed high risk will reflect a higher cost to the business.

Another factor typically used is the number of past claims made by the employer. The higher the number, the higher is the cost.

When it comes to premium payments, factors that are usually considered include the number of employees who work part-time as well as full-time. If the business implements a safety program, it may be able to get discounts.

How your small business can reduce premiums

  • Understand your rates - each state has a classification system that looks at a business' experience modifier. This is established based on a business' claims history. This can lower or raise rates. If your business can reduce the number of workers' comp claims, you will be assessed a lower rate.

  • Have a safety program - with this program in place, along with the proper training of employees, you can get a reduction on your employees' claims. They say prevention is better than a cure, in this case, it can also gain you some savings.

  • Know how your business is classified - certain businesses have multiple classifications. A proper review ensures that the jobs reported have the right classifications; otherwise, an error may result in higher premiums.

  • Consider group rates - these are rates available to businesses who are members of certain associations. Certain national organizations, for example, get discounted rates for member businesses.

Requirements on workers' compensation by state

State Requirements
Alaska A business is required to get coverage when it has 1 or more workers. The business may also opt for self-insurance; however, it has to get approval from the state.
Alabama The business is given the option on the way it wants to provide workers' comp to its employees.
Arizona Both private and public employers are required to carry coverage if they employ at least one worker. Coverage is optional for those who employ working partners, domestic help and also those who are sole proprietors.
Arkansas Majority of businesses with 3 or more workers are required. However, there are exceptions that employers need to check with the stage agency concerned.
California All employers are required. Business provide their own coverage if they cannot secure coverage from the State Fund.
Colorado Both private and public employers are required to carry coverage if they employ at least one full time worker. Exemptions to this state law are few.
Connecticut Employers with one worker are required to get coverage with the exception of those who self-insure. Those with household workers whose weekly work totals 26 hours or less are exempted. Certain businesses like sole proprietors, partnerships, LLCs with multiple members may opt not to provide for themselves.
Delaware Businesses with 1 or more workers are required. There are requirements that need to be satisfied for an employee to receive his benefits. Independent contractors are not required.
District of Columbia Businesses with 1 or more workers are required.
Florida Businesses that employ 4 or more workers are required if they operate in an industry aside from construction.
Georgia All employers who have 3 or more workers whether they work part time or full time are required.
Hawaii Businesses who have 1 or more workers, either part time or full time are required to get coverage.
Idaho Businesses who have 1 or more workers, either part time, full time, or seasonal are required to get coverage. A business is required to get coverage once the first worker is hired. Exemptions are available for household helpers, and family members working for a sole proprietorship business.
Illinois Coverage is a requirement in all work situations.
Indiana Both private and public employers are required to carry coverage. The number of workers does not matter, as all workers must be covered.
Iowa Most businesses need to get a policy. Coverage is mandatory for those with eligible workers. A business may apply for self-insurance with the Iowa Insurance Commissioner.
Kansas All businesses are obliged to get coverage. Certain exemptions apply, for example, businesses whose gross payroll is $20,000 or less a year. Also agricultural employers are granted exemption. Employers are also exempted in this regard.
Kentucky Both private and public employers are required to carry coverage. The number of workers does not matter, as all workers must be covered.
Louisiana All businesses are required and they have to show proof that they can provide coverage. Exemptions apply to real estate agents, performers, musicians and others.
Maine Any employer with 1 or more workers is required to get coverage.
Maryland Businesses with one or more workers are required. There are a few exceptions. For instance, agricultural businesses with less than 3 workers or with a yearly payroll of $15,000 or less are exempted.
Massachusetts All employers are required to carry regardless of total hours worked. This includes owners who are also workers. Even domestic help who provide a minimum of 16 hours of work per week are also required.
Michigan All businesses must carry workers comp. No exemptions allowed.
Minnesota All businesses are required to get coverage even if they employ workers who are not American citizens or are not of legal age.
Mississippi Most businesses are required. There are exceptions. For instance, businesses with fewer than five workers are not required. So are workers who work in farms as well as independent contractors.
Missouri Businesses who employ five or more workers are required to get coverage. For businesses that are in the construction industry, they are required to get one even if there is only one worker. Workers are not distinguished whether they work on a part time, full time, seasonal or on temporary basis.
Montana All employers are required to get coverage.
Nebraska All employers are required to get coverage.
Nevada Businesses with at least a worker must have insurance. They can opt for self-insurance or to purchase a policy from a commercial carrier. There are exemptions like if a worker already has a private disability policy.
New Hampshire All employers are required to get coverage. Even if a worker is a relative of the owner he should be provided with a policy.
New Jersey All businesses are required to get policies for their workers. They can also opt for self-insurance. Out-of-state businesses may also be required to get coverage if work is performed in the state or contracted in the state.
New Mexico Businesses with 3 or more workers are required to get a policy. Businesses that operated in the construction sector are required even if they have only one worker.
New York All type of workers should be covered whether they work part time, full time or on lease basis. The state's law also requires that public school teachers, certain county workers as well as certain volunteers be provided with coverage.
North Carolina Businesses with 3 or more workers should get coverage.
North Dakota All businesses, regardless of the number of their employees, are required to have coverage.
Ohio All businesses with one or more workers must have coverage.
Oklahoma All businesses with one or more workers must have coverage even those whose sole employee works on a part time basis.
Oregon All businesses with one or more workers must have coverage even those whose sole employee works on a part time basis.
Pennsylvania All businesses are required by state law to provide insurance coverage to their workers. They may opt to self-insure, to get coverage via a state fund, or from a commercial insurance provider. Even domestic help and farm workers are entitled.
Rhode Island All businesses are required but there are available exemptions like sole business owners and independent contractors. Certain farm workers and domestic help may be exempted as well.
South Carolina Businesses with 4 or more employees are required to provide coverage. Exemptions apply to railroad workers, farm workers, businesses in the railway express industry, and businesses with total yearly payroll of $3,000 or less.
South Dakota In general, all businesses are required to provide coverage to their workers. They can opt for self-insurance if they meet a set of criteria.
Tennessee Every business with more than 5 workers has to carry insurance. Exemptions are available for companies in the construction industry even if the number of workers they employ is less than 5.
Texas The state does not make it a requirement for all businesses to carry workers comp. There are exceptions like construction projects carried out for government agencies - in these cases coverage is mandatory. Employees are granted the right to pursue compensation if they believe they have a strong case and the business refuses to pay the benefits.
Utah All businesses are required, however those that employ farm workers and have a total salary of up to $50,000 are granted exemption.
Vermont All businesses are required to provide their workers with coverage regardless of their number.
Virginia State law requires all businesses that have 3 or more workers to carry workers comp insurance. This is regardless whether these workers work part time or full time. Businesses with less than 3 employees may opt to provide insurance.
Washington All businesses are required. Exceptions and waivers are not allowed.
West Virginia Coverage is mandatory for all businesses. Exemptions are available for those who employ less than 5 farm workers and those considered as casual employers with less than 3 employees.
Wisconsin Only businesses with less than 3 workers are granted exemption. Waivers are not permitted.
Wyoming All businesses are required to get coverage for their workers. No numerical exemptions and no waivers allowed either.
The list of state labor offices and how to contact them are provided in this link: www.dol.gov/whd/contacts/state_of.htm
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