Any business owner with at least one employee likely has basic familiarity with Workers’ Compensation insurance. Here are some key details all employers should know about workers’ compensation insurance.
Workers’ Comp Works On Business Clients’ Behalf
Workers’ Comp pays benefits to employees with job-related injuries or illnesses that result in lost wages, medical bills or both. Workers’ Comp is also the sole type of employee insurance that most state laws require small businesses to carry. Thus, it seems quite simple to buy a Worker’s Comp policy if state law requires, right? Wrong. The choice isn’t so easy in terms of practicality as it may appear.
Common Myths Concerning Minimum Workers’ Comp Insurance Coverage
As mentioned earlier, a majority of state statutes require all businesses with at least one employee to maintain Workers’ Comp insurance coverage. Per an insurance trade publication, compulsory state laws mandate some minimum Workers’ Comp coverage level that employers must have for legal compliance, with no exceptions allowed.
A tiny handful of states like Texas don’t require Workers’ Comp. However, as aptly noted, legal technicality is never last say or first right to refuse in harsh reality. That’s because coverage is typically required to win or even bid on lucrative contracts. An overview of very realistic scenarios below is a vivid illustration of how Workers’ Compensation means best percentage play even if its costs seem unjustified today.
Scenario #1: State law doesn’t require coverage but a prospective client’s firm does. You’d need coverage to satisfy contractual requirements – or forfeit the job.
Scenario #2: State law doesn’t require coverage but you require subcontractors to have Workers’ Comp. Each prospective subcontractor would need coverage to satisfy your contractual requirements – or forfeit the job.
Scenario #3: Neither state law nor prospective clients require coverage but contractual terms pose high economic loss exposure to legal liability for employee injuries or illnesses. You’re wise to have adequate Workers’ Comp vs. assume risk of loss in multiples of premium cost.
Take Two-Steps to Bypass First Big Workers’ Comp Mistake
As the above outline should show, it’s vital to know two basic rules of thumb that can almost guarantee not going wrong when it comes to Workers’ Comp.
- Rule #1: Legal regulations supersede private obligations. Thus, obey state law before you proceed any further, as private contractual terms don’t relieve statutory duty, prevent third-party liability or fulfill sole legal compliance responsibility.
- Rule #2: Once Rule #1 is satisfied but not required, or fully complied with state law, decide if extra Workers’ Comp coverage is justified via a thorough cost-benefit analysis based on unique factors specific to each case in turn.