Workers’ compensation is a federal requirement for most employers. Most small to mid-sized companies (SMBs) must obtain worker’s compensation insurance, make regular contributions, and maintain a safe work environment for their employees.
Here’s what SMBs need to know about workers’ compensation requirements and how Mosey can help with state compliance.
What Is Workers’ Compensation?
Workers’ compensation is a type of insurance that provides medical benefits and wage replacement to employees who suffer work-related injuries or illnesses.
Workers’ compensation is a no-fault insurance system designed to protect both employees and employers. Most types of insurance work by determining a fault percentage — the person at fault will be responsible for most of the damages or payments.
However, workers’ comp doesn’t assign fault. Instead, it provides financial support to injured workers or employees who develop workplace injuries regardless of who may be at fault. Workers’ comp shields employers from lawsuits in the majority of cases by providing an alternative form of faultless compensation.
What Are the Legal Requirements for Workers’ Compensation?
Workers’ compensation requirements vary by state, but most states mandate employers to carry workers’ comp insurance if they have two or more employees. Sole proprietors are never required to purchase workers’ compensation coverage if they don’t hire employees.
Even in states where coverage is not mandatory for small businesses with few employees, it’s still advisable to have workers’ compensation to protect the company and its workers in case of an accident.
Texas is the only state that doesn’t impose a legal requirement for workers’ comp. Still, it’s usually a good idea to obtain an alternative form of private insurance that would serve a similar purpose.
What Happens if Your Business Doesn’t Have Workers’ Comp?
Workers’ compensation is usually mandated by law. You could be subjected to hefty noncompliance fines and penalties if you don’t have workers’ comp.
In addition to fines and penalties, injured or ill employees can directly file a claim against you for all costs associated with their illness or injury. Paying a claim can be substantially more expensive than obtaining the required workers’ compensation coverage.
When To Set Up Workers’ Compensation
Since workers’ comp is usually legally required, most businesses that know they will be hiring two or more employees will set up workers’ compensation as soon as their business is officially established. It’s an essential part of starting a business in most cases.
However, things change and evolve. Businesses grow. Even sole proprietors will occasionally hire employees if their businesses scale beyond the scope of a one-person job. If you didn’t initially need workers’ compensation, you can set it up whenever it becomes necessary.
It doesn’t necessarily matter at what specific point you set up workers’ compensation as long as you do it before you hire employees. If you don’t hire anyone for the first year of your business, you don’t need workers’ comp for that entire year.
Some states allow sole proprietors to purchase workers’ compensation for themselves, but it’s never a requirement. If you’re a sole proprietor, consider how workers’ comp may benefit you if you become injured or ill. You can obtain coverage if you believe it would be helpful.
How To Set Up Workers’ Compensation
Setting up workers’ comp involves many considerations. The good news is that you’ll only need to complete the process once per business per state. Maintaining compliance will be easy if you carefully consider your needs in the beginning.
Determine Coverage Requirements
Research and understand the workers’ compensation requirements specific to the state(s) where your business operates. Most states have a state-administered workers’ compensation fund that businesses use.
States without a state-administered fund require employers to purchase insurance from a private carrier. However, the state of Washington exclusively utilizes its state workers’ comp fund. Other states will allow businesses to self-insure with approval. Approval processes vary.
Evaluate Your Business Needs
Assess your business operations, number of employees, and potential risks to determine the appropriate level of coverage you need. Consider factors such as the nature of the work performed, industry standards, and employee safety protocols.
Retail locations, office jobs, and white-collar positions usually require less coverage than positions where people work with tools, machines, or chemicals. A factory with heavy machinery would need substantially more coverage than an office where most employees work safely from their desks.
If you’re considering private insurance or if private insurance is your only option, assess your level of risk when choosing a policy.
Find an Insurance Provider (if Necessary)
If you plan to use state-administered workers’ comp or if your business is located in Washington, you won’t need to find an insurance provider. If you don’t have access to state-administered workers’ Comp or believe commercial insurance would better fit your business, it’s time to browse providers.
Many insurance companies provide workers’ compensation coverage for small to mid-sized businesses. Compare quotes and coverage options. Speaking to other SMB owners in the area may help you gain insight into their experiences with insurance providers — you’re likely to receive valuable suggestions.
Review policy details carefully to ensure they meet legal requirements and provide adequate coverage for potential workplace injuries or illnesses. Pay attention to coverage limits, exclusions, deductibles, and premium costs.
Insurance can be costly, especially for high-risk industries. It may be helpful to have your lawyer review your policy to ensure your premiums are fair for the coverage you’re receiving.
Implement Safety and Injury Prevention Measures
Workers’ compensation requirements and workplace safety compliance go hand in hand. You must provide a reasonably safe workplace and train your employees in proper safety protocols to prevent workplace-related illnesses and injuries.
Employers must also follow specific state and federal safety protocols. Many safety requirements are industry-specific. For example, requirements for employers in the construction injury field will be far more extensive than workplace safety protocols for employers who own retail boutiques.
It’s important to research the specs for your industry. Provide necessary workplace safety equipment and develop an accident or injury plan to help injured employees get medical attention as quickly as possible.
Educate and Inform Employees
It’s the employer’s responsibility to educate employees about workers’ compensation benefits, their rights to file claims, and the process for reporting work-related injuries or illnesses. The Department of Labor requires all employers to place a large workers’ compensation labor law poster in a conspicuous place at every job site or office.
Train managers and supervisors on their roles and responsibilities in managing workers’ compensation claims. Ensure they understand how to handle injury reporting, assist injured employees, and communicate effectively with insurance providers.
Establish a Claims Management Process
When a workers’ compensation claim is filed, the process of completing the claim is partially on the employer and partially on the employee. Employees must provide medical documents and attend appointments with a workers’ comp-approved doctor. Meanwhile, the employer must facilitate communication with the workers’ compensation board or the insurer.
If you’re using state-administered workers’ compensation insurance, your state board will provide instructions for the claims process. Commercial insurers set their own requirements for filing claims and providing medical evidence.
You may need to act as an intermediary between your employee and your private insurance company, so it’s important to establish a clear process for submitting and managing claims.
Review and Continue Compliance Measures
Requirements can change, as can your need for coverage. Staying up to date with workers’ compensation laws and regularly reviewing your insurance coverage can help you stay prepared.
If anyone becomes injured or ill at work, it’s a good idea to use that data to fortify your workplace safety plan. Small changes can prevent other employees from becoming injured or ill in the same way.
Finally, if you start using new equipment or supplies in your workplace, you may need to update your safety policy to reflect the changes you’ve made. Ensure employees are always current on their training for best workplace safety practices.
How Are State and Federal Workers’ Comp Rules Different?
Workers’ compensation is a federal requirement, but states can set their own rules for when and how employers should utilize it. Anyone who hires employees (usually two or more) will need workers’ comp, but states can tailor the processes to the needs of their workforce.
Employers are required to follow the process of the state or states in which they operate. Coverage requirements, the minimum number of employees, and policy choices vary widely across the U.S. It’s important to use your state’s workers’ compensation guidelines to meet compliance requirements.
Compliance can be slightly more complicated in states that don’t offer a state-administered workers’ comp program because employers must shop for their own qualifying policy.
Insurers offer tailored workers’ compensation policies in most states, and comparing coverage options and assuring your policy meets state requirements can be a lengthy process that involves a wealth of research.
Mosey Can Help With Workers’ Comp Requirements
The workers’ compensation process can vary by state, with each state enforcing its own methods of obtaining benefits and setting coverage requirements. Multi-state employers sometimes face compliance challenges when operating in states with different laws.
Mosey’s compliance management system is designed to allow employers to track key compliance requirements, like workers’ compensation laws. Our compliance automation notes compliance requirements and simplifies the process of taking the necessary steps to meet regulatory standards. We’ll even automate registering for workers’ compensation in monopolistic states.
Schedule a demo with Mosey to learn how we can make it easier for you to manage compliance.
