The Small Business Owner’s Guide to Workers’ Compensation

This is a guest post from Mike Khorev (see bio at the end) – Thanks Mike.

Efficient business leaders go the extra mile when motivating their teams. They praise, recognize, and provide a sense of security. That was the message by Peter Rossi in the article: Ways to Boost Employee Motivation. This post is all about giving employees that sense of security. 

Employees feel more secure when they know they have the right to collect for injury, disability, or death if it occurs while working. Workers Compensation Laws give staffers that benefit no matter who is at fault. 

This guide will help you understand the basics of Workers’ Compensation laws, how they work, and the benefits to your small business. Hopefully that’s helpful, but this guide is an educational resource only – if you have specific questions you should reach out to an attorney. 

Photo by Tim Mossholder on Unsplash

The History and Basics of Workers’ Compensation

Before Workers’ Compensation laws came up, employees sued their employers for lost wages, medical expenses, and other reparations in case of injury, disability, or death while at work. These were hard-to-fight court battles for employees since they had to prove negligence by the employer. Those who won were also underpaid, often receiving the equivalent of about one year’s wages. 

The State of Wisconsin was the first to step in and enact Workers’ Comp laws to provide social insurance for employees in 1911. By 1948 every state had enacted similar laws. As time passed, the statutes have evolved significantly. But the basics have not shifted. Some of the basics of these laws include:

  • Formulation and enactment of the laws are by the legislative body of the state. Implementation is by a state agency.
  • The laws share the same principles across different states. Differences may exist, but they are minor. 
  • The statutes provide an entitlement for lost earnings, medical treatment, and recovery services to staffers who experience occupational injury or develop an ailment or a debilitating condition due to their work.
  • Compensation does not regard who is at fault. On the other hand, the liability of the employer is limited. 
  • In the case of permanent disability, calculation of the amount to compensate considers the wages lost. 

Although Workers’ Compensation covers occupational injury, parties must adhere to the principles that guide how the statutes work. 

How Does Workers’ Comp Work? 

Workers’ Comp laws are no-fault laws based on these principles:

  • Injured employees are entitled to receive payment for their losses without proving that the employer was at fault. 
  • Actions by an employee, whether deemed carelessness or seeming lack of better judgment, do not affect the benefit amount.
  • The benefits provided under Workers’ compensation insurance are the exclusive remedy available to the employees – they cannot later sue the employer for additional compensation. 
  • The employee loses his or her right to Workers’ Compensation if: 
    • He or she was under the influence of alcohol or drugs when the injury occurred.
    • The injury was a result of an attempt to hurt oneself or a colleague. 

All the states, except for Texas, require that employers must carry Workers’ Compensation insurance. However, there are some minor differences between different states’ laws. For example, when handling psychological conditions and whether to use private insurers or state-funded programs exclusively. 

Implementation is by the state. Each state sets up a board or a commission that oversees compliance and claims processing. The board/commission determines whether the insurer will make payments and how much. 

As an example, the Kansas statute requires all employers with a payroll budget of more than $20,000 annually to provide Workers’ Compensation insurance for both full-time and part-time employees. Employers can go to private insurers (either directly or through an agent) to get quotes and procure. 

These four factors will influence the coverage and premium:

  • Your business location. 
  • Nature of work. 
  • Payroll budget. 
  • Claims history. 

Why Your Small Business Needs Workers’ Compensation Insurance

First of all, it is the law. If you are within the legal threshold, the law requires the business to have Workers’ Comp insurance. 

But Workers’ Compensation insurance is more than an arm twist by the state. Both the employer and employees benefit. For the employer, liability for occupational injury is limited. Thus it significantly reduces the risk of financial loss. 

On the other hand, Workers’ Comp assures compensation for wages lost due to workplace injuries or illnesses regardless of who was at fault. Employees also get decent care as they recover. 

Small businesses, in particular, benefit immensely from Workers’ Comp insurance. Out-of-pocket payments for work-related injuries can destabilize the company. Coverage protects the company from this financial risk. 

If your business is still a one-man/one-woman show, you still have plenty of reasons to get Workers’ Comp. Some of the scenarios that the coverage would be helpful include: 

  • In case you are injured while working.
  • In case you bid for a gig where the hiring company insists that contractors should have Workers’ comp. 
  • When you frequently engage contractors in your line of business. Remember, even though contractors are not direct employees, one can sue and get an award to compensate for injuries sustained while contracted by your company. 

Photo by Kyle Ryan on Unsplash

The Bottom Line 

The law requires employers to have Workers’ Compensation. It protects the employer against financial loss and provides employees with security. Reach out to a Workers’ Comp lawyer to understand more about how it would benefit your business and for help on negotiating coverage. 

Mike Khorev is an SEO consultant and digital marketing expert who helps SaaS, Software, IT and Tech companies generate more leads and sales and grow revenue online. He offers expert advice on marketing your company the right way through performance-based SEO, web design, social media, search engine marketing and many other online practices.

Shawn Kinkade Kansas City Business Coach