Should You Purchase Workers’ Comp Insurance?


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Unfortunately accidents happen. Workman’s compensation laws are designed to protect workers who are injured or become sick on the job. Workman’s compensation insurance can protect you as an employer. If you’re a small business owner considering purchasing workman’s compensation insurance, the following guidelines will help you make the best decision for your company and your workers.

Workers’ Compensation Insurance Defined

Workers’ compensation is designed to provide workers who are injured or become ill on the job with a specified amount of financial compensation, without the need to file a legal complaint. Dependents of workers who are killed as a result of workplace injury are also eligible to receive awards under workers’ compensation. Co-workers are also protected by limits placed on their liability in a workers’ compensation claim. Employers are also protected by limits placed on the amount of compensation that employees are allowed to collect under workers’ compensation.

Workers’ Compensation Laws and Regulations

Public workers’ compensation programs are generally administered by individual states. However, federal employees, longshoremen, seamen and miners suffering from Black Lung disease are not covered by public workers’ compensation programs. Workers in these categories are covered by separate programs, listed below:

  • Federal Employment Compensation Act
  • Longshore and Harbor Workers’ Compensation Act
  • Merchant Marine Act
  • Black Lung Act

Criteria for Workers Compensation Eligibility

There are three basic criteria that workers must meet to be eligible for compensation under workers’ compensation programs. First, the person or company that employs the worker must carry workers’ compensation coverage or be required by law to do so. Second, the worker must be an actual employee. Third, the injury or illness must be work related.

While these criteria may appear to be clear cut, this is not actually true, especially where the second two criteria are concerned. State laws vary and are frequently unclear about whether an individual or company is required to carry workers’ compensation insurance. Determining whether a worker is an eligible employee or a contractor (who is not eligible) is often murky. Confusion can also occur about whether an injury or illness is work related. For instance, if Jane falls and breaks her leg on her lunch break, workers’ compensation often does not apply. However, if she took the same fall on her way to buy pick up a catered lunch for her co-workers and boss, her injury may well be covered by workers’ compensation insurance.

Special Cases

Specific cases to determine whether an injured worker is eligible for workers’ compensation frequently require legal interpretation. However, there are several special cases where workers are either NOT eligible for workers’ compensation protection, or their status is unclear. These cases are listed below.

  • Domestic Workers (exempted from coverage by some states)
  • Agricultural and Farm Workers (usually exempted from coverage under state law)
  • Leased Workers (may be covered by the company they work for or the temp company)
  • Casual or Seasonal Workers (exempted from coverage by some states)
  • Undocumented Workers (covered by some states, explicitly excluded by others, unclear status for the remainder of the states)

Public versus Private Workers’ Compensation Coverage

Depending on your location, your state may its own workers’ compensation fund or you may have the option of purchasing private workers’ compensation insurance. If you opt for private workers’ compensation insurance, you’ll probably be required to submit an estimate of your company’s payroll to determine the premium. At the end of the policy period, you will likely be required to submit your company’s actual payroll to an audit process to determine the final premium amount. Premiums vary according to several factors, including the number of contractors and loaned workers employed by your company (if any) and the National Council of Compensation Insurance (NCII) classification of your company’s business.

State administered workers’ compensation programs are less strict about underwriting their policies. As a result, state administered workers’ compensation plans frequently operate as providers of last resort for businesses that are considered too high a risk to be eligible for coverage by private workers’ compensation plans. State administered workers’ compensation programs also frequently pay larger dividends than private policies do, providing employers to adopt workplace safety regulations.

On the other hand, state administered policies also engage in loss prevention practices, albeit by different means than privately administered workers’ compensation programs. The final decision between choosing a state administered workers’ compensation plan and a private plan is ultimately the employers’ decision – unless the company is located in a state where private plans are not available. There is no one-size-fits-all solution.

Disclaimer: This article represents a general overview of workers’ compensation regulations and benefits. It is not intended to provide legal advice. Please consult with a workers’ compensation specialist in your jurisdiction with specific questions concerning workers’ compensation requirements and benefits for your company and its workers.

Audrey Henderson
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Posted In: Money

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