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Updated: March 27th, 2020
Small business workers’ comp is a type of insurance. It protects employees by covering their medical expenses and missed wages when they are injured at work, and it also protects small business owners from potential lawsuits.
But not every small business purchases workers’ comp coverage for their employees. Is that legal?
Let’s look at some of the laws regarding workers’ compensation insurance, including who needs it as well as what it covers—and what it doesn’t cover.
The laws governing small business workers’ compensation insurance are made at the state level. This means if you’re a small business owner, you’ll need to check the laws in your state to find out if your business is required to purchase this policy.
Though most states require business owners to have workers’ comp insurance once they hire their first employee, each state has its own rules. For example:
If your business is required to have coverage but doesn’t, you could face heavy fines and even jail time. For example, in Pennsylvania, it’s a third-degree felony to intentionally not comply with workers’ comp laws. A guilty employer could be fined up to $15,000 and spend up to seven years in jail for each day of noncompliance.
Even if your state doesn’t require it, you might still want to consider purchasing workers’ comp insurance. If you don’t have coverage, a work-injured or sickened employee might sue you to cover the cost of their medical expenses. When you consider that the average workplace injury claim costs $36,551, according to the National Safety Council, worker’s comp seems like a pretty good deal.
Workers’ compensation can pay for a work-injured employee’s…
Some small business owners mistakenly assume that general liability insurance can cover medical expenses for injured employees, but that’s not the case. General liability only pays for third-party bodily injuries. So if a customer, client, or a vendor is injured at your business, general liability can foot the bill. But only workers’ comp can cover an employee’s occupational injury.
Workers’ comp can pay for most injuries and illnesses that an employee suffers on the job. However, there are some exceptions, including…
Small business workers’ comp also doesn’t cover a replacement worker’s wages if you need to hire someone to pitch in while your injured employee recovers.
Michael Jones is a Senior Editor for Funding Circle, specializing in small business loans. He holds a degree in International Business and Economics from Boston University's Questrom School of Business. Prior to Funding Circle, Michael was the Head of Content for Bond Street, a venture-backed FinTech company specializing in small business loans. He has written extensively about small business loans, entrepreneurship, and marketing.