Small Business Help

A quick and easy small business guide to workers’ compensation

Joseph Patterson | November 6, 2019
If you’re confused by anything related to workers' comp, you are not alone. A quick Google search brings up all sorts of related questions. Can workers’ comp be used to qualify for a mortgage? Can workers’ comp spy on you? Short answers: no and no. There are SO MANY searches related to workers’ comp. And that tells us employees and employers don’t know what it is or what it’s for. So rather than addressing just one question under the workers’ comp umbrella, we’re answering five. 

1. What is workers’ comp? 

“Workers' compensation (workers’ comp) is a form of accident insurance paid by employers … If you’re injured on the job or acquire a work-related illness, workers’ comp will pay your medical expenses.” Workers’ comp also covers wage-loss compensation until the employee can return to the job.Key takeaway: Workers’ comp is a huge benefit for employees. But hopefully, it’s one they’ll never need. It’s like having a rainy-day fund. You hope your washer or dryer will live forever. But when they give up the ghost, it’s an immense relief to know there’s money set aside to pay for a new one. 

2. Do I need to provide workers’ comp?

It depends. First and foremost, workers’ comp is a benefit that changes from state to state and industry to industry. In Alabama, for instance, some small businesses with four or fewer employees are exempt from having to purchase workers’ comp insurance. In Washington, however, sole proprietors are one of the few acceptable exclusions. Check out this state-by-state resource for more information. Or plug your location and business type into this workers’ comp calculator to see how likely it is that you’ll need to pay. Key takeaway: If you’re beginning to think you don’t need workers’ comp insurance, consider this: In a recent survey of small business owners, 64% of respondents said they currently provide workers' comp insurance.* Of these, 13% said they purchased workers’ comp after getting fined for not having it. Suffice to say, failing to supply workers’ comp can be a financial gamble for employers as well as employees.  

3. How much does workers’ comp cost?

Workers’ comp is one of those expenses where the cost of not having it could easily trump the cost of buying it. “Every 7 seconds, a worker is injured on the job in the U.S.​ ​The average cost for a workers’ comp medically consulted injury claim nationwide and across industries is over $30,000 (and over $1 million for a work-related death)​, while the national median cost of coverage per worker is $1.70 per $100 of payroll​,” according to a QuickBooks small business resourceOffering workers’ comp saves money for employees and employers. On the employee side, it covers things like medical expenses or lost wages for injuries incurred while at work. But for employers, it’s legal protection. Workers’ comp covers the cost of lawsuits brought against the business by an employee. It also absolves employers from being financially responsible for an employee’s injury. Most small business owners have good relationships with their workers. They’d want to help if an employee were injured on the job. But rather than bankrupting the business with hospital bills, workers’ comp ensures employers and employees get the support they need to move forward. Key takeaway: Workers’ comp may not be as expensive as you imagine. Get a free quote, or shop around for the best rate, as you would for any type of business insurance.  

4. How does workers’ comp work?

Every insurance company is a little different. Typically, a workers’ comp provider pays out a claim within 14 days of the worker notifying their employer and making a claim. Here’s a brief synopsis of a typical workers’ comp situation:
  1. An employee sustains an injury on the job.
  2. The employee notifies their employer, who has workers' comp insurance.
  3. The employee seeks medical attention.
  4. The employer provides the employee with claim forms and gives them the contact information of the workers’ comp insurance provider.
  5. The employee files their claim with the insurance company.
  6. The insurance company approves the claim and pays for things like medical bills or rehabilitation costs. If the employee is unable to work, the insurance company might pay two-thirds of the employee’s normal wages. 
  7. The employee recovers and returns to work. 
Key takeaway: Insurance companies also have different options for paying an injured employee. Some will send a check, while others might use direct deposit. Talk to your workers’ comp provider to get more details on their claims process.  

5. Should I provide workers’ comp insurance at my small business?

If you’re a small business owner, you should know if workers’ compensation is required by your industry and state. And if it’s not required, you may be wondering what to do. Should you purchase workers’ comp insurance anyway or save the cash and hope for the best?There are a few reasons to provide workers' comp that have nothing to do with legal requirements.
  • It’s good for employee morale. Employees like knowing their bosses have their backs if they’re ever injured on the job.
  • It protects you, too. Accidents happen, and the bills must be paid, insurance or no. Workers’ comp keeps you, the employer, from being sued into bankruptcy. 
  • You won’t tempt Murphy’s Law. The day you decide not to carry workers’ comp insurance is the day someone gets hurt. That’s just how the universe works!
Key takeaway: In the end, every small business is different. What works for some may not be right for others. But for most employers, purchasing workers’ compensation insurance is a no-brainer.
*QuickBooks Payroll commissioned Pollfish in June 2019 to survey 1,067 U.S. business owners (age 18+) about their workers’ compensation coverage. A statistically significant sample of survey respondents was independently provided by Pollfish. Respondents were rewarded via third-party applications for their voluntary participation.
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