Small Business Workers’ Comp: When and Why You Need It

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.

Why Employers Need Small Business Workers’ Comp

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:

• For the majority of Texas employers, purchasing workers’ comp coverage is optional.
• In New York, most business owners are required to buy coverage even if they only have one employee.
• Florida business owners generally need workers’ comp insurance if they have four or more employees. However, if they work in construction, that number drops to one.

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.

What Small Business Workers’ Comp Covers

Workers’ compensation can pay for a work-injured employee’s…

• Medical bills.
• Ongoing care, such as medication or rehabilitation.
• Partial missed wages.
• Funeral expenses if the employee dies.
• Death benefits to the family.

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.

What Small Business Workers’ Comp Doesn’t Cover

Workers’ comp can pay for most injuries and illnesses that an employee suffers on the job. However, there are some exceptions, including…

• Self-inflicted injuries.
• Injuries caused by an employee being either intoxicated or under the influence.
• Injuries suffered in a fight the employee started.
• Injuries that an employee suffers from “horsing around.”
• Injuries that result from the employee violating company policy.
• Injuries that occur when employees aren’t on the clock.
• Injuries the employee sustains after they have been fired or laid off.
• Independent contractor injuries.

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.

Rebecca Hosley is a content writer for Insureon, an online small business insurance agency. She specializes in small business insurance and tech startups.

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