If you employ people to work for your business, it’s important that you have an understanding of how workers’ compensation laws could affect you.
Workers’ compensation insurance is a form of insurance that’s designed to help employees injured on the job site, or while working off-site. It provides financial support for workers who are injured while working, typically for expenses such as medical care.
Most workman’s’ compensation plans also cover lost income, meaning employees can receive a form of income while unable to work due to their injuries.
As an employer, it’s important to be aware of the implications workers’ compensation can have on your business. Below, we’ve explained how workers’ comp affects you as a business owner, as well as what you can do to make it manageable and predictable for your business.
Do You Need Workers’ Compensation Insurance?
Under the law, your business needs to have work injury compensation insurance if it employees other people.
In California, sole proprietorships (businesses that are owned and operated by one person) do not need to carry workers’ comp insurance, as long as the owner is the only person to operate the business.
Even a single employee (including a part-time employee) necessitates that your business has some form of work injury compensation insurance.
Beyond the legal requirement to carry workman’s compensation insurance, it’s an easy financial decision. If one of your employees is injured at work and you don’t have coverage, the cost of supporting them could endanger or even bankrupt your small business.
What is Provided Under Workers’ Compensation?
Work injury compensation includes financial support and assistance for a variety of situations and potential expenses. Some of the most common benefits provided by workers’ compensation are medical care and disability benefits (both temporary and permanent).
Other benefits available under workers’ compensation include death benefits (paid in the event an employee dies due to a workplace accident), supplemental job displacement benefits and an additional return-to-work supplement.
Is it Possible to Self-Insure?
Most businesses opt to purchase workers’ comp insurance to protect themselves from the cost of a work injury compensation claim. For most small and mid-sized business, insurance is almost always the most cost-effective, reliable option.
However, in certain cases, it may be possible to operate a self-funded (or self-insured) workers’ compensation plan. In California, companies can only self-fund if they meet certain criteria, such as $5 million or more in shareholder equity and a certain average annual profit.
There are also auditing requirements for businesses that opt to self-fund. On the whole, while it is possible to self-insure, the vast majority of businesses choose to purchase insurance due to the competitive pricing and significantly simpler paperwork process.
What Happens if You Don’t Have Workers’ Compensation Insurance?
Without workmans’ compensation insurance, your business could face fines. You could also pay a significant amount of money out in the event of an accident. For small businesses, even a small workplace accident is often enough to put the business in significant financial distress.
Under the California Workers’ Compensation Act, fines can range from $10,000 to $50,000 or more. There are also legal penalties for failing to submit reports/filings, engaging in bad faith conduct and submitting fraudulent workers’ comp claims.
Are You Covered?
If your business has part-time, full-time or seasonal employees, it’s essential that you have a workers’ insurance policy.
Workers’ comp insurance not only protects your employees — it also works to protect your business from the immense costs that can result from accidents. Without insurance, even small workplace injuries can place a significant financial strain on your business.
Interested in purchasing workers’ comp insurance for your business? Learn more about our range of competitively-priced workers’ compensation insurance plans for businesses of all sizes.