Small businesses make up 99.7% of U.S. employer firms, and there are approximately 6 million small business employers across the U.S.* Nearly all of them must carry workers’ compensation insurance.
Despite being a necessity for almost every U.S. employer, workers’ compensation law can be confusing and complicated for small business owners. What’s more, insurance companies have little incentive to write policies for less than five employees or $250,000 in payroll. Shouldn’t it be easier to get something you have to have?
WorkCompOne is where small businesses get workers’ compensation. We believe small business owners deserve a faster and simpler workers’ compensation solution. This guide outlines what you need to know to buy workers’ compensation insurance.
The U.S. Small Business Administration reports that 21.5% of small businesses employ at least one worker, which means approximately 1 in 5 small business owners is legally required to carry a current workers’ compensation insurance policy, with enough coverage for their current staff.
“Approximately 1 in 5 small business owners is legally required to carry workers’ compensation insurance.”
Failure to provide proof of insurance or a lapse in coverage can expose a small business to legal and financial liability. The employer may need to cover medical expenses out of pocket, an injured employee may be able to sue for negligence, and the state may impose fines or disbar the business from public work contracts.
A workers’ compensation insurance policy serves both employee and employer with the following benefits:
Whether or not it’s required, workers’ comp insurance protects small business owners by covering medical expenses and lost wages for injured workers, and pays for employer legal defense fees in the event of a lawsuit.
Workers’ compensation is, in essence, a compromise between employer and employee. The history of workers’ compensation in the U.S. goes back to worker protections that arose from the Progressive Era in the early 20th century.
After a deadly fire at the Triangle Shirtwaist Company factory in New York City, state legislatures began to require employers to compensate workers for injuries sustained on the job, regardless of fault. The insurance product followed soon after to help employers afford work comp claims, by offering no policy limits on employee medical care.
Workers’ compensation is mandated across the U.S., but because it’s regulated at the state level, each state has its own requirements. Familiarize yourself with your state’s rules to make sure you’re in compliance, and keep in mind that you must abide by the rules of the state where your employees are performing work - not where your business was founded or is headquartered.
These factors often differ from state to state:
Workers' compensation across state lines: If your employees are traveling across state lines for work, or your business is moving or expanding to another state, check the requirements there before employees begin work.
Do business owners need to buy workers' comp insurance for themselves? Or if they purchase a policy for employees, are they covered case of injury, too? The answer is, it depends.
Depending on the state, owners and corporate officers may be allowed to exempt themselves from coverage if they wish. Certain states include or exclude owners by default. Lastly, these exceptions are sometimes specific to the individuals role: sole proprietors might be handled differently than partners, LLC members or corporate officers.
“Many independent agents can’t or won’t write work comp because it’s often more difficult and less profitable work for them. In this case, a work comp specialist can provide the guidance and policy you need.”
If you need to buy workers’ compensation insurance, you can quote and bind in as little as one business day. Here’s what you need to know to get started.
Whether your state has a private or public work comp market will dictate your options for insurance shopping. In a monopolistic state? Find out your state’s workers’ compensation provider, and purchase a policy through the state fund.
If you’re in a private-market state, you have a few additional options:
Insurance carrier, broker or agency: A licensed insurance carrier that sells workers’ compensation coverage.
Most small businesses will start shopping with their local broker or insurance agency. An independent agent can shop several carriers and bring you the best price. However, many independent agencies can’t or won’t write work comp because it’s often more difficult and less profitable work for them. In this case, a work comp specialist 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.
State fund: An insurance carrier run by the state government, which in non-monopolistic states competes with the private market. It can be a good alternative for businesses having a hard time finding coverage elsewhere.
Assigned risk pool: Because carrying insurance is legally mandated, employers have to find coverage somewhere. As a solution, some states offer an assigned risk pool for higher-risk businesses; for example, more injury-prone industries like roofing or businesses that have had multiple work comp claims.
If you’ve been denied coverage by several insurers, consider contacting your state’s assigned risk pool for coverage.
To get a quote, you’ll need to provide information on your company and employees. Have the following in front of you before contacting an insurer:
That’s it! Requesting a quote can be done in less than 10 minutes.
“You can control costs by working with an insurance agent that has a strong network of carriers, and by encouraging safe workplace practices.”
As an employer, workers’ compensation is a necessary cost to budget for the upcoming year. How much should you set aside? A small business workers’ comp premium can range from a few hundred dollars to a few thousand dollars, depending on four main factors.
Business owners cannot control many aspects of a work comp premium. You can control costs by working with an insurance agency that has a strong network of business insurance carriers, and by encouraging safe workplace practices. Many insurers also offer a variety of payment options to spread costs throughout the year. Learn more about how a workers' compensation premium is calculated.
WorkCompOne is a Cleveland-based online insurance agency that’s changing workers’ compensation insurance. By bringing together best practices in technology and insurance, we’ve built an easy, new way for businesses to secure workers’ compensation insurance online.
Founded in 2012, WorkCompOne offers coverage to businesses of all sizes through its online platform, best-in-class customer service and partnership with leading national carriers.
Have more questions about work comp? Try these resources: