Read our complete guide to find out everything you need to know about workers’ compensation insurance for your contracting business.
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What is workers’ compensation insurance?
Workers’ compensation insurance, commonly known as workers’ comp, is a form of liability insurance that provides funds for employees who suffer work-related injuries or illnesses. Workers’ comp helps to cover medical expenses and lost wages associated with these injuries.
In the contracting world, where occupational injuries may occur more frequently, workers’ comp can be a critical component to preventing excessive financial burdens on your business.
Example: An employee is lifting bricks for a construction job and injures his back, leaving him unable to work.
In exchange for accepting workers’ compensation benefits, an injured employee agrees to not sue your business for the injury. Workers’ compensation insurance is no-fault, which means that it pays benefits regardless of whether the employer or employee is at fault for the injury.
What does workers’ compensation insurance cover?
Workers’ compensation insurance covers your employees, which includes workers who are not U.S. citizens as well as minors, who suffer a work-related injury or illness.
A work-related injury is an injury that is related to a worker’s job duties, which includes most injuries that occur while an employee is working. The range of injuries and illnesses covered is broad and may include accidents from slipping and falling to exposure to toxic chemicals. Each state regulates the kinds of illnesses or injuries that workers’ compensation insurance covers, so coverage may vary from state to state.
Injuries that occur on a job site, client site, or outside of your office are covered. Injuries that occur while traveling for work reasons, such as driving from the office to a client site or driving between work sites are also covered, even if driving a personal vehicle.
» Learn more about what worker’s compensation insurance covers
What doesn’t workers’ compensation insurance cover?
Injuries suffered in the following situations would not be covered by workers’ compensation:
- Injuries while commuting to and from work
- Drug or alcohol-related injuries
- Injuries sustained while not at work
- Fights or violence initiated by the employee
- Injuries that are purposefully self-inflicted
- Horseplay or violations of company policy
What does workers’ compensation insurance pay for?
In the event of injury at work, worker’s comp will pay for:
- Medical expenses as a result of the injury
- Rehabilitation and physical therapy costs
- A portion of lost wages (usually around two-thirds, but it varies by state) during the time the employee is unable to work
The amount of income replacement offered by workers’ compensation depends upon whether the employee’s impairment is total or partial, and whether it is temporary or permanent.
Most states require that benefits be paid for the duration of the disability. Some states specify a maximum number of weeks for the lost wages to be paid, especially for temporary disabilities.
In the event of death at work, workers’ compensation insurance will pay for:
- Funeral costs
- Death benefits for surviving close relatives, such as a spouse or children
Death benefits for surviving relatives are based upon an employee’s weekly wages. The benefit is a portion (commonly two-thirds but it varies by state) of the worker’s wage at the time of death. Rules vary by state, but for a surviving spouse, the benefit may be paid until their own death or remarriage. For children, the benefits may be paid until the children reach age 18.
Is workers’ compensation insurance required?
Worker’s compensation insurance requirements vary by state. In most, coverage is not required until a business has employees who are not owners or partners in the business. However, many states have special requirements for all construction businesses to carry workers’ compensation insurance, even if the business has only a single owner and no employees.
As a contractor, you may find that many of your potential clients will require that you are covered by workers’ compensation insurance. This is due to the client’s desire to remain protected from any liability that may arise in an accident or injury. If a client hires a contractor without workers’ comp, and the contractor or one of the contractor’s employees is injured on the job, the client could be liable for the injured person’s medical bills and lost wages.
If your business hires subcontractors, you should require proof of workers’ compensation insurance from all of your subcontractors in order to avoid any unintended liability. Most states treat an uninsured contractor, subcontractor, or their employees as an employee of the hiring company. This means you may be legally liable for the injuries of your contractor or subcontractor if they are injured while doing work for your company.
How do states regulate workers’ compensation insurance?
Workers’ compensation insurance is regulated by each individual state, and each state has slightly different regulations and requirements for employers and insurance companies. The states determine:
- Benefit amounts for each employee
- Which illnesses and injuries are covered
- Diagnostic tests for impairments and injuries
- Protocols for delivery of medical care
States also have different regulations for providers of workers’ compensation insurance. States generally have one of three systems:
- Insurance provided solely by a state-run insurer
- Businesses can choose between insurance provided by a state-run insurer and private insurers
- All workers’ compensation insurers are private companies
How much does workers’ compensation insurance cost?
Pricing for workers’ compensation insurance is based upon a number of factors, including:
- Business location
- Number of employees
- Nature of the business, which is based on the industry classification code
- Dollar amount of payroll
- Claims history
Workers’ comp premiums are usually quoted as a rate per $100 of payroll, and the range of premiums varies widely. Generally speaking though, you can assume that lower risk industries and professions, like a desk job, will pay significantly less than higher risk professions, like a roofer or construction worker.
How do I get workers’ compensation insurance?
There are many factors to consider when purchasing workers’ compensation insurance—from the financial strength of an insurer to the pricing that you’re offered. Workers’ compensation insurance can be complex, as each state has its own unique regulations, and for businesses that cross state lines, juggling all of the different requirements can get complicated. Selecting an experienced insurance provider is important when it comes to workers’ comp, and it’s particularly important to find an insurance provider that can understand the nuances and needs of your specific business.
When selecting an insurance company, there are three main factors you should look at:
- The financial strength of the insurer
- Reputation for customer service
» Learn more about how to get workers’ compensation insurance