Most states require workers compensation insurance for the majority of businesses. Workers compensation insurance is designed to protect employees who are injured on the job and, depending on your location and industry, you may be required to carry this insurance before ever inviting an employee to work for you.
Why is Workers Compensation Insurance Necessary?
In the event you have an employee who is injured or falls ill on-the-job, it is possible that the employee will sue your business for damages. If you are sued, not only will you need to spend a substantial amount of money on legal fees, but you may also have to cover the lost wages and medical costs for the employee. As you can probably imagine, not having workers compensation insurance can spell bankruptcy for a business if an employee sustains particularly serious employment-related injuries. This is especially true for small businesses who don’t have financial cushion to handle sudden and unexpected expenses.
It is also important to check the workers compensation laws in your state. You may be subjected to fines if you fail to secure workers compensation insurance for your employees. You could also be required to stop doing business until you purchase adequate workers compensation coverage for your employees.
When Do You Need Workers' Compensation Insurance?
An employer only needs to have workers' compensation coverage if they have employees. However, certain types of workers do not need to be covered by workers compensation coverage. For example, if you have independent contractors working for your business, you do not need to purchase a workers compensation policy. An independent contractor refers to any individual who is running their own separate business. The types of workers who are excluded vary from state to state.
Limited liability company members, partners in partnerships, and self-employed sole proprietors do not need to buy workers compensation coverage. The only exception to this rule is if non-owner employees are hired. If you are a business owner who is self-employed, it is important that you secure workers compensation insurance prior to hiring your first non-owner employee.
While most states don't require the owners of a business themselves to be covered by workers compensation insurance, it is still a good idea to have coverage for owners.
No matter where you are or what industry you work in, workers compensation is crucial for keeping your business and your employees safe.