Being a business owner, you’re probably well aware of all the different types of insurance you need. In fact, you can get business insurance, including commercial property insurance and general liability coverage, for just about any type of risk your company might face.
But what about small business workers’ comp? Protecting your business from employee liability as a result of an on-the-job injury is just as important — and is required in most states, including here in Pennsylvania. Besides, small business workers’ comp insurance doesn’t just protect you, the employer, but also your employees.
The problem, however, is fast growing companies that have many employees may face high employee-benefits costs. This may tempt you to choose limited benefits and even decide to not purchase workers’ compensation insurance at all.
Making this decision, though, can come with some serious risks, which can end up being more expensive for your company in the long run than providing workers’ comp in the first place. Here’s a look at the pros and cons of getting workers’ comp insurance for your small business employees.
Workplace Accidents and Injuries Statistics
To set the stage for analyzing the pros and cons of workers’ comp insurance, let’s take a look at some facts and figures of workplace accidents and injuries. Below are some of the startling statistics reported in a press release from the U.S. Bureau of Labor that business owners should carefully weigh when thinking about workers’ comp coverage:
- There were 104 cases of nonfatal workplace injuries and illnesses that required 10,000 full-time workers to take days off work to recuperate in 2015 alone.
- There were more than 309,000 cases of slips, trips and falls in the workplace in the same year.
- There were a total of 421,610 days away from work as a result of workplace-acquired strains, sprains and tears.
In addition to these non-fatal occupational statistics, there were a total of 4,836 workplace-related injuries that resulted in death in 2015.
What is the Purpose of Workers’ Compensation Insurance?
As a business owner, it’s your responsibility to ensure your workspaces are taken care of and stay safe. However, no matter how safe you make your workplace, accidents can, and do, still happen.
Workers’ comp insurance for small business employees covers employee’s wage-loss and medical expenses if they are injured on the job. It will also provide protection against lawsuits your employees may file if they are injured on your company grounds.
In other words, workers’ comp for small business employees will replace your employees’ lost wages and help them have the necessary finances for needed medical care to get them well again. It doesn’t matter who’s at fault whether it’s you, your employee, other employees or even customers. The benefits of small business workers’ comp are guaranteed regardless, and it limits an employee’s right to sue your company if they sustain an injury while working.
State Laws Regarding Workers’ Comp Insurance
Each state, including Pennsylvania, has its own law regarding workers’ comp insurance for small business employees. These laws, along with court decisions, have control over workers’ compensation, and not all laws are the same for all states.
State laws determine workers’ compensation benefits, such as:
- How much in benefits an employee gets
- Which injuries and impairments are covered
- How impairments and injuries are evaluated
- How medical care will be provided
Additionally, each state dictates if the insurance is provided by the state, a state-run agency or through an independent insurance company. Each state dictates how claims will be managed and how any potential disputes will be resolved. A state may also pose certain limitations to control costs, such as limiting certain types of medical care, like chiropractic care, for example.
What Constitutes a Worker?
Typically a worker is considered an employee if they perform services under the direction of an employer. This includes non-citizen workers and minors. On the other hand, independent contractors are not considered employees under some laws, but an uninsured contractor, a subcontractor or their employees may be treated as your employee. If this is the case, you can be liable if any of them are injured while performing a job for you.
It’s in your best interest to require these types of workers to show you proof they have purchased their own workers’ compensation insurance.
If you have an immediate family member such as your child, parent or spouse working for your company, they may not be counted as an employee who should get small business workers’ comp insurance. Other family members, like your sibling or an in-law, are typically an exception to this. If any of these situations occur in your small business, it’s best to speak with your independent insurance agency to see how workers’ comp insurance applies to you.
What is the Difference Between Workers’ Comp and Short- and Long-Term Disability Benefits?
It’s important to understand that both short- and long-term disability differs from workers’ compensation insurance.
Long-Term Disability Insurance
Where workers’ compensation is mandatory for most businesses with employees to cover workplace-related injuries or diseases caused by the workplace, long-term disability is not mandatory. The latter covers lost wages of an employee who can’t work because of a disability they incurred that was not related to work. This type of insurance is actually a benefit many employers offer.
Short-Term Disability Insurance
Similar to long-term disability, this type of insurance will also help replace lost wages of an employee who is out of work because of a disability not related to work. But it is typically paid out for a shorter time period and is generally available to the employee earlier than their long-term benefits. This is also a benefit that you may wish to offer but it is not mandatory.
How Workers’ Compensation Protects Your Small Business
Since the law mandates workers’ compensation insurance in most states, you may think it’s just another overhead expense that doesn’t provide much benefit. However, it is designed to protect not just your employee but you as well.
Not only does the standard workers’ compensation insurance cover you from any employee lawsuits from injuries or illnesses sustained on your business grounds but there are also optional parts of a policy that could benefit you even more. These include:
- Coverage for legal costs you incur if an inappropriate claim is made by an employee regarding a work-related injury or illness. This is automatically included on a standard workers’ comp policy, however, you can choose how much coverage you want for this type of liability.
- Coverage for an employee who gets injured in a state that is not where you normally operate your business.
- Coverage for certain types of illnesses and injuries.
- Coverage for funeral expenses and dependent financial support.
- Coverage for a certain percentage of reimbursement for lost wages.
Of course, your premiums may vary depending on which optional coverage you choose, so you may want to consider this when you receive workers’ compensation quotes.
How Workers’ Compensation Protects Your Employees
Workers’ comp insurance for small business employees covers their occupational diseases and injuries regardless of fault. Without workers’ comp, you may be liable even if your employee contributed to the illness or injury.
Your employees are typically protected with workers’ compensation in the following work-related areas:
- Injuries to a limb
- Loss of a limb
- Injuries that occurred in the workplace
- Repetitive motion or certain diseases
- Medical treatment and rehabilitation
- Lost wages up to a stipulated percentage
- Death
Remember, you’re legally responsible for the safety of your workplace and are obligated to take the necessary steps to ensure it stays safe. But since accidents can happen no matter how safe you are, workers’ comp provides your employees with the coverage they need to receive proper care so they can get back to work as quickly as possible.
What Are the Risks of Not Providing Workers’ Comp to My Employees?
There are several significant risks you take as a small business by not providing workers’ compensation insurance to your employees. These include:
Penalties for Non-Compliance
First of all, it’s the law to have workers’ comp in most states, including Pennsylvania. Failure to carry workers’ compensation in Pennsylvania is a criminal offense. This criminal offense is generally a misdemeanor offense, but if the court finds the employer intentionally omitted providing workers’ comp to employees, then the offense could be deemed a felony. An employer in Pennsylvania, for example, could face a fine of up to $2,500, in addition to possibly having to serve one year in prison.
Potential Employee Lawsuits
You could face a serious lawsuit from an employee’s work-related injury. For instance, an employee can get injured in your place of business and end up with a permanent disability. This employee can then turn around and sue you for their pain and suffering, which you could end up having to compensate them for. That same now-former employee could also demand compensation for their lack of income since they are unable to work.
Financial Repercussions
Compound the above with an employee’s medical expenses, and you can cost your business a significant financial setback for not having coverage. If the medical expenses and damages from employee lawsuits are steep, you may end up having to file bankruptcy because a lawsuit or medical expenses put a huge financial burden on your company.
Consider this — each year, around $170 billion is shelled out by businesses on occupational injury expenses, which come directly out of the companies’ profits, according to the U.S. Department of Labor.
Reduced Employee Morale
When employees know they can count on your company to help them when a work injury impacts their health or livelihood, you build trust between you. And when other employees witness how well you as an employer cared for and supported an injured worker in the aftermath of a work-related accident, it builds morale even more.
Not providing workers’ compensation benefits can reduce the morale of your employees. This can harm your business productivity, since benefits are important in keeping employees engaged.
Higher Employee Turnover
It’s not just the financial inconvenience that will get you, either. When you provide your employees with workers’ compensation insurance, you are telling them you value their safety and are willing to ensure they are taken care of. Otherwise, you may not keep them for very long, and they will move onto another company that does.
Basically, if you don’t cover your company and employees with small business workers’ comp, it can put you at serious risk. You may think that paying for an employee’s injury out-of-pocket is a better option. However, the small monthly premiums you pay to get protected will likely be less expensive than the out-of-pocket expense that comes unexpectedly.
Putting your business at risk of potentially unlimited financial liability just to save yourself this little added expense is not worth the risk.
Managing Your Risks
Being a small business with a smaller staff, it could seem like workers’ compensation insurance is just an added cost. But the cost of insurance shouldn’t deter you from getting the proper coverage. You should always look at the big picture and the risks, including those described above, associated with leaving your company unprotected.
Another thing you can do besides getting workers’ comp insurance for your small business is to designate a person to assume the responsibility of a risk manager to focus on loss control and manage workers’ compensation claims. By having a risk manager in place and implementing a workers safety program, you stand to keep your employees safe and claims down.
In addition, some states’ insurance companies offer employers accident prevention services. These services, although not required, are designed and provided by workers’ comp insurance companies to help you enhance workplace safety. As a business, you can set up programs and safety committees for dealing with unsafe workplace conditions.
Even if not mandatory, programs like these can really help reduce accidents. If you set up a worker safety committee in certain areas of your business to help figure out where work-related accidents are happening the most and then work on reducing them, it can cut your accident rate down considerably.
How to Get Workers’ Compensation for Your Small Business
To ensure your business and your employees are protected, you can purchase workers’ compensation insurance from an independent insurance agency right away. You need this coverage as soon as you hire your very first employee. Typically, this insurance is purchased separately from your small business insurance policy.
Be sure to work with an independent insurance company that has experience in handling workers’ comp claims, and talk with an agent about the specific coverage you will need for your company.
We’re here at Strock Insurance to help answer any questions you have about workers’ compensation for your small business. We help small businesses just like yours in Camp Hill, Harrisburg, Lebanon, Mechanicsburg and the other nearby areas in Pennsylvania, and we can help you manage your risks too.
Contact us today for more information or for a workers’ compensation quote.
