Your business is growing, you’re hiring or expanding your market, and you need work comp. (Congrats!)
Workers’ compensation insurance can be confusing to understand and challenging to buy, particularly for small business owners. We’re here to help.
WorkCompOne has helped thousands of small business owners buy workers’ compensation coverage, many for the first time. Follow this step-by-step guide to shop for your growing business.
Note: This walks you through how to buy workers’ compensation insurance. Want to know more? Read The Small Business Owner’s Guide to Workers’ Compensation Insurance >>
Background: What Is Workers’ Compensation?
Workers’ compensation is a set of legal requirements that protects workers, by paying for treatment, rehabilitation, lost wages and/or death benefits if they’re injured or killed on the job. Its origins in the U.S. date back to the early 20th century, and it incentivizes employers to maintain safe workplace conditions.
Workers’ compensation insurance, which is often also called workers’ compensation, workers’ comp, or work comp, is a commercial insurance policy that covers the expenses mentioned above. By purchasing a policy for its employees, an employer can file a claim when a worker is injured, and the insurance carrier will compensate the employee for medical bills and lost wages. The policy also pays the legal fees of the employer, if the employee sues for additional damages.
For example, your work comp policy would kick in if:
- Your employee slips and falls in the kitchen, hurting his back. He now needs to take three weeks off work, and will require doctors’ visits and physical therapy to recover.
- A driver is in a car crash while on a delivery, and is now no longer able to work.
- An administrative assistant develops carpal tunnel from long hours at the computer. Your policy would cover her surgery costs and wages during her two-week recovery time.
Workers’ compensation coverage is almost universally mandatory. Nearly every employer in the U.S. is legally required to carry a current workers’ compensation insurance policy for its workforce. But it can be confusing to navigate, especially for first-time buyers.
Here’s what you need to know to get the right coverage, so your business is both compliant and protected.
Step 1: Check Your State Requirements
Workers’ compensation is generally a statutory requirement, but the requirements vary from state to state. That’s because state law dictates its own workers’ compensation system.
Find out what your state requires before you start shopping, so you know for sure if you need it and which employees must be covered. The most common factors that differ from state to state include:
- Where can I buy it? Business owners can purchase a policy from any commercial insurer licensed in that state. Some states also offer a public option or state fund, which competes with the private market.
- Who needs to be covered? The state decides the employee limits, or the number of employees required to be covered by a work comp policy. Often businesses with three or fewer employees aren’t required to carry coverage; however, you may still be held liable if a worker is injured on the job.
- Who’s considered an employee? Employers don’t decide who is legally considered an employee. Most states agree that full- and part-time workers are employees, but they may differ in how they treat sole proprietors, partners, members of an LLC, independent contractors and family members.
- What if we leave the state? All work comp policies provide coverage within state lines. Some states offer reciprocity with other states, or honor an All States Endorsement. This can be added to a policy by your insurer to allow coverage to apply in any non-monopolistic state for temporary work or business-related travel.
If any other requirements apply to your business, a commercial insurance rep familiar with your state work comp system can guide you in the right direction.
Step 2: Calculate Your Payroll
Whether you need work comp insurance depends on the number of employees you have, but your premium will be based on your payroll. Specifically, the payroll for each type of job your employees do.
Here’s how it works.
- Write down or record in a spreadsheet each employee that needs to be covered, according to your state regulations.
- Beside each employee, write their annual salary. It can be rounded to the nearest thousand.
- Next to that, write their job title or a short description of what they do. For example, sales, clerical, carpenter or dog walker. Be brief, but specific.
- If any employees do the same type of work, add their salaries together to get the combined payroll. If you have two carpenters that make $40,000 and $45,000, you’ll need coverage for an $85,000 carpentry payroll.
The insurance rep may ask you additional questions about your employees, like if they travel for work or routinely work from home. From there, your business will be assigned Class Codes, short for Classification Codes. These numeric codes are used nationwide to categorize employees, and knowing them will make it easier to renew or shop for insurance in the future.
Step 3: Find a Commercial Insurance Agency or Carrier
Based on your state regulations, you should now know where you can purchase an insurance policy. Your available choice(s) may be:
- Insurance carrier: A licensed, commercial insurance carrier that sells workers’ compensation coverage. Carriers actually provide the insurance coverage, and in the event of the claim, would administer the process and provide payment to the injured employee.
- Insurance agency or broker: An agency may represent one carrier exclusively, and handle administrative tasks, recommend plans and help settle claims. An independent agent represents several carriers, and can shop around for the best price.
- State fund: An insurance carrier run by a state agency. If you’re in a monopolistic state with a public work comp market, this is a small business’ sole option for coverage. In non-monopolistic states, the state fund competes with the private market. It can be a good alternative for businesses having a hard time finding coverage elsewhere.
- Assigned risk pool: Some states offer an assigned risk pool for higher-risk businesses; for example, more injury-prone industries like trucking or businesses that have had multiple work comp claims. If you’ve been denied two or three times, consider contacting your state’s assigned risk pool for coverage.
Most small businesses will start shopping with their local broker or insurance agency. However, many independent agencies can’t or won’t write work comp because it’s often more difficult and less profitable work for them. An agency that specializes in work comp can provide the guidance and policy you need.
Check that your selected insurer is licensed to write in all states where you need employees covered - that is, all states where your employees perform work.
Step 4: Contact the Insurer to Request a Policy Quote
Almost there! Many traditional insurance agencies and carriers require you to call or meet in person to review your information, ask follow-up questions and submit your information to the carrier’s underwriters. (Underwriters, in short, determine whether the carrier can cover your business, and how much your premium will cost.)
Newer agencies are using technology to serve small businesses online and on their schedule. Emerging insuretech tools are making every step in the process easier and faster: from getting a quote and a certificate of insurance, to paying your premium or submitting a claim.
Here’s what to have in front of you:
- EIN Number: If you’re a sole proprietor, you can use your social security number.
- Number of employees and payroll: That broken-down payroll we discussed earlier? Have it handy.
- Basic business details: You should be able to provide a description of your business operations, the number of locations and their addresses.
That’s it! Depending on the agency, receiving a quote could take under an hour, or up to several business days.
What do these mean? If you’re asked about an Experience Modifier, this probably doesn’t apply to you - yet. Once you’ve been in business and held work comp coverage for several years, you may be assigned an Experience Modifier. This is a number that applies a mandatory debit or credit on your premium. It compares your history of claims to similar businesses.
Same thing with Loss Runs. These apply to more complex business with higher premiums. It’s a claims report that show all claims that have been paid on your behalf for a specified period of time.
Get Workers’ Compensation Insurance for Your Small Business
That’s all there is to it. And WorkCompOne makes it simple with an easy, five-step process. Interested? You can get started on a free, no-obligation quote on your next coffee break.