If you have employees, you probably have no choice about carrying workers’ compensation insurance. Workers’ compensation insurance is required by law. This may sound like an imposition, but it’s really for your own good. Before the workers’ compensation system was implemented, employees could sue their employers for expenses resulting from a job-related injury. These suits could be expensive not just for the employee but for the employer and could be a ruinous expense for a small business. With workers’ compensation insurance, the employee is no longer allowed to sue their employer but instead must file a complaint with the company providing the insurance. This keeps everyone out of court and moves the onus for investigating the case from the company and its lawyers to the insurance company itself. If the company determines that the claim is valid, the liability is paid out of the insurance fund itself.
How much will you need to pay into the workers’ compensation fund?
That depends on the claims experience of the industry in which you work. Claims experience is the historical record of the number of injuries that occur in a given line of work. Obviously the construction industry will have a higher rate of claims for work-related injuries than, say, a typical Internet company. Companies in a particularly dangerous industry may have to pay unusually high premiums, but this will be offset by the protection that these premiums and workers’ compensation in general gives you against the possibility of huge courtroom settlements.
Workers’ compensation insurance is available from a number of private insurers and may be available for a discount. Alternatively, in some states you can insure yourself, by making regular payments into a state fund. Although workers’ compensation insurance is generally required of businesses, it isn’t required of self-employed individuals. However, it is possible for a self-employed individual to opt into workers’ compensation—if, for instance, the individual has employees who assist in the business and wants to indemnify against lawsuits—even though this form of business insurance isn’t required.