Small business owners play an important role in communities across the United States. Small businesses have long been known to add value to their communities, providing the goods and services locals need. The business owners know that there are many challenges to face when it comes to operating a small company. One of these challenges is that of workers’ compensation – what is required by law, what it costs, and how compensation plans work to protect employees of small business operations. In this guide, we will explore some of the issues and facts surrounding workers’ compensation insurance, helping business owners to understand how to minimize expenses while ensuring compliance with state and local laws.
The Basics of Workers’ Comp Plans
Small business owners know that they need to protect their assets with insurance. Employees are regarded as the most valuable assets of any size business but are particularly important to the small business model. Employers – even small business owners with as few as one or two employees – have a duty to provide their employees with safe working conditions. When a workplace accident causes an injury to an employee, workers’ comp provides coverage for medical expenses and lost wages. Certain other coverages may be available, depending on the type of policy, and may include:
- Survivor benefits for family members of employees killed on the job.
- Training and/or retraining expenses for employees affected by a workplace accident.
- Long-term care expenses for workers who receive a disability as a result of an on-the-job injury.
Typically, workers’ comp is regulated by state authorities, which also set guidelines for which injuries are covered, how healthcare is provided to injured employees, and whether there are financial caps on any benefits an injured employee may receive. Without state-mandated workers’ compensation insurance, employers would have to pay out of pocket for medical expenses as well as any penalties imposed by regulatory officials. This can have a devastating effect on the business and its ability to continue operations. Unfortunately, many small business owners either do not have workers’ comp insurance or do not understand its benefits and limitations.
Financial Concerns About Workers’ Comp
Small business owners typically run on tight margins, with few – if any – profits during the first few years of operation. Overhead expenses eat up any profits that may be attained, and that leaves business owners scrambling to slash costs. Some owners have a misguided belief that workers’ comp insurance is expensive. While it does contribute to overhead expenses, the cost of going without this valuable coverage far exceeds the annual premiums such a policy costs. A workplace injury could potentially cost thousands or even millions of dollars in out-of-pocket expenses if workers’ comp policies are not in place.
Business owners may also qualify for premium reductions called experience modification rates, which help to control expenses. Regular workers’ comp audits can reveal hidden expenses, and eliminating those expenses can also help save small business owners money.
Healthcare Insurance vs. Workers’ Comp
A common misconception about workers’ compensation is that if employees already have healthcare insurance, the expenses associated with workplace-related injuries are already covered. This is not the case; in many cases of workplace injuries, healthcare insurers will not cover the injury and may actually advise injury victims to file a workers’ comp claim. Both healthcare insurance and workers’ comp insurance provide tangible benefits to employees, helping to improve employee retention rates and making the business more attractive to potential work candidates. It is critical that business owners understand the differences and limitations of both insurance plans in order to better protect their assets.
Limitations in Workers’ Comp Coverage
Finally, it is important for small business owners to understand what is covered under workers’ compensation insurance and what is not. “Workplace injuries” encompass a broad range of incidents and conditions; coverage is typically provided if a worker were to become injured through accidents or workplace environment conditions. If a worker is operating equipment in an unsafe manner, or workplace environments are maintained in an unsafe manner, workers’ comp claims may be denied.
Other limitations on claims include:
- Injuries incurred by contractors/subcontractors/independent contractors. These workers are typically not eligible to file a claim against the employers they have contracted with.
- Injuries occurring off the job site.
- Injuries that are self-inflicted or incurred through the employee’s own negligence, neglect, or drug/alcohol use on the job.
Workers’ compensation insurance is an important part of the risk management plan for small businesses. With the appropriate coverage, business owners can avoid devastating expenses related to workplace injury claims and can ensure compliance with applicable state laws.
About Caitlin Morgan
Caitlin Morgan specializes in insuring assisted living facilities and nursing homes and can assist you in providing insurance and risk management services for this niche market. Give us a call to learn more about our programs at 877.226.1027.