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Small Business > Workers' Comp Basics

With the exception of Texas, employers in all states need workers’ compensation insurance. It covers your employees’ medical costs and lost wages if they are injured on the job. Benefits are paid through workers’ compensation no matter who is to blame for the injury. The employer is not admitting liability for the injury and the employee gets benefits without having to sue. But, if horseplay, alcohol, or illegal drugs are involved, workers’ compensation will not pay.

Each state requires a certain amount of coverage for each employer and what percentage of the employee’s salary must be covered if he or she is away from work because of a work-related injury. You may find yourself excluded from this coverage if you are a business owner, independent contractor, farm or maritime worker, railroad employee, or unpaid volunteer. These vary from state to state.

Basic workers’ compensation insurance includes medical treatment, rehabilitation expenses and lost wage replacement, up to two-thirds of an employee’s salary while out of work. Employer liability insurance is also available in case an employee’s family chooses to sue for damages to the employee while at work.

Choosing an insurer

Purchasing workers’ compensation is different across states. A number of them require you to purchase workers’ compensation insurance through a state agency. North Dakota, Ohio, Washington, West Virginia and Wyoming all fall into this category. However, these states do not require you to purchase employer liability insurance with the workers’ compensation coverage, so you can choose to purchase that through a commercial insurer.

If you are not in one of the states listed above, you have two options besides commercial insurers when purchasing workers’ compensation. These are state insurance pools and self-insurance.

State workers’ compensation insurance pools are focused on higher risk companies, ones that have a poor safety record or above-average number of claims. Because of this, purchasing insurance from a state pool can be quite expensive.

Self-insurance is available in 47 states for businesses of a certain size. This means that the business takes on the risk of paying for work-related injuries themselves instead of having an insurance company do it for them.