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Workers' Compensation Insurance: The Basics

It's not uncommon for employees to experience an on-the-job injury. Workers' compensation is here to protect both the employer and the employee.

As an employer, you hate to think of your employees getting sick or injured as a result of work. But, it does happen. An employee slips on a spill and breaks his or her arm, develops carpal tunnel syndrome, or lifts something heavy and suffers a back injury.

There are many ways employees can incur work-related injuries or illnesses. Luckily, there’s workers’ compensation insurance. Whether you know it as workers’ comp insurance, workmans’ comp, workmans’ compensation, or something else, it provides valuable benefits.

Two Levels of Coverage

Workers’ compensation insurance is designed to protect the injured employee, as well as the employer. There are basically two levels of coverage.

1. Employee coverage

The first level of coverage is for the employees. Because the injury or illness happened while working, they can receive benefits to help cover related expenses. These generally include the following:

  • Medical costs – The injured or sick employee may incur a variety of medical expenses, from emergency room visits to hospitalizations, follow-up doctor visits and prescriptions.
  • Death benefits – If the work-related illness or injury results in an employee’s death, workers’ compensation insurance can pay funeral expenses and death benefits to the remaining dependents/beneficiaries.
  • Lost wages – When an employee needs to miss work due to the illness or injury, workers’ compensation can pay a portion of missed wages.

2. Employer coverage

Having workers’ compensation insurance helps reduce the risk of employees suing your business for a work-related injury or sickness. Instead, they agree to receive the benefits allowed by the workers’ compensation coverage.

For Work-Related Illnesses or Injuries

One thing to remember is that the injury or illness must be tied directly to the job. This doesn’t mean it has to happen at your business, though. For example, if a staff member is hurt while working at a trade show or driving to the store for your business, workers’ compensation benefits would generally apply. (Driving to and from work doesn’t apply.)

Employees Only

The person who suffered the injury or illness must be an employee of your business. Typically, this does not include independent contractors. However, it’s important to make sure your definition of an independent contractor matches your state’s definition. If they are actually deemed to be an employee, they could be covered by your workers’ compensation program.

State Requirements

Workers’ compensation is regulated by each individual state. Most states do require that employers carry workers’ compensation if they have employees. Of course, there are exceptions. For that reason, it’s important to be familiar with the requirements for your particular state. You’ll want to contact the appropriate state office for details. Not only does each state determine when workers’ compensation insurance is required, but they also determine the following factors:

  • What is covered
  • Who is covered
  • Benefits
  • Exemptions
  • Cost
  • Penalties

Speaking of Penalties

Going without workers’ compensation is not recommended. The ramifications of foregoing this valuable coverage can be quite severe, especially if an employee is injured and hires workers’ compensation lawyers.

  • Fines – Some states could fine your business for every day you do not have workers’ compensation coverage. As you can imagine, this can add up to thousands of dollars, putting your business in jeopardy.
  • Business Closure – Your business may have to close until you prove you have coverage, resulting in lost revenue.
  • Imprisonment – In some states, one of the penalties for not carrying workers’ compensation when required is jail time.
  • Personal liability – You may be responsible for paying the medical expenses, lost wages and other costs for the sick or injured employee. Your employee could contact a workers’ compensation attorney and sue you.

Better to Be Safe Than Sorry

Even if it turns out your state does not require your business to carry workers’ compensation insurance for one reason or another, you should seriously consider it to protect your business and employees. If one of your employees is injured at work or becomes ill and you don’t have coverage, you could be responsible for expenses relating to the injury or illness or the death of your employee. (In that case, some health insurance companies could deny the claim.) A workers’ compensation policy could be the right decision for everyone.

Get on the Right Track

We want to help your business succeed. Part of this is being prepared for anything – even an employee’s work-related illness or injury. It takes one phone call to make sure you have valuable insurance and comply with your state requirements. Get started by calling 800-394-1466.

NCMIC Insurance Services is a licensed insurance agency. Insurance coverage is underwritten through many of the nation's leading insurance carriers. CA license #0B84564. In NY: NCMIC Insurance Agency. In MI: NCMIC Insurance Services Agency, Inc.

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