One of the many “surprises” of becoming a small business owner is something called workers’ compensation insurance. Yes, if you have any employees, you need it. And, yes, it might be expensive.
Now that the initial shock has worn off, there is an upside to workers’ compensation — it shields businesses from catastrophic legal liability when one of their workers is injured and it provides some certainty as to annual costs.
Let’s get right to it. Here is how the respected National Federation of Independent Business (NFIB), a leading small business advocacy group, defines workers’ compensation:
Workers’ compensation is a form of insurance that covers the medical and rehabilitation costs of your employees if they’re injured on the job. (It also covers some lost wages.) Typically, having insurance that covers these costs means employees give up their right to sue your business for negligence—and in turn, they get peace of mind knowing they can recover for work-related injuries without the complexity of a lawsuit.
Requirements for workers’ compensation are set by states. Consult your state labor or similar agency to find out the rules, because they vary widely. Some states are much more relaxed on injury claims than others. A manufacturing plant in Illinois, for example, might pay $150,000 in workers’ compensation insurance and that same plant in neighboring Indiana might pay half that.
Drilling down further on cost, the NFIB explains: different occupations have different “risk classifications.” The classifications are determined based on how often an injury occurs at the workplace and the severity of the injury. A dollar amount is then given based on the amount of risk. Clerical and office workers’ risk level, for example, is going to be fairly low, so the costs will be too. The premiums can go up or down based on your business’s safety history as well, and other factors such as whether or not you offer health insurance.
There are many more complexities that need to be taken into account. If you are operating in multiple states or send employees to other states, you need to take into account those states differing insurance requirements and insure accordingly.
A Question of Safety
Another dimension to the entire workers’ compensation question is safety. Of course, as a small business owner you want to provide a safe workplace. Going that extra mile will keep your workers safe and also could keep your workers’ comp costs down, too.
Entrepreneur magazine has written extensively on workers’ compensation and focuses heavily on safety.
Keeping your workplace safe is one of the better ways to keep workers’ comp costs down.
Entrepreneur offers three general suggestions:
- Discuss safety at every opportunity. If a company gets into a safety-first mindset and stays there, the attitude becomes ingrained in the company culture. Over time, the savings can be enormous and pain much less, literally, for employees.
- Think metrics. A good practice is to make every employee aware of the company’s safety record. Take safety seriously and your workers will as well. Make it a corporate challenge to decrease workplace injuries year by year.
- Stay current on trends regarding workplace injuries. Your insurance company can provide some guidance here, but keep a dialogue open with other small business owners and watch trade journals and the internet. If you get ahead of workplace injuries, your company will prosper.
Workers’ compensation was started in earnest in the United States in 1911. It is not a perfect way to balance the rights of workers and employers, but it has been serviceable for more than a century. There have been calls for overhauling the structure of workers’ compensation system that haven’t caught fire. Therefore, it is yet another reality that small business owners must confront, understand and conquer as much as possible.
The key for small business owners to “beat” workers’ compensation costs is to take extraordinary steps to keep your workers safe and your insurance premiums down. That is a simple message that should resonate from the work stations to the boardroom of your company.
Learn more about workers’ compensation and get a quote.