Whether or not you need workers’ comp insurance for your company depends on the nature of the job, the employer-employee relationship, and the unique regulations of the state you’re operating in. As a small-business owner, it’s a good idea to determine any exceptions that exist in your state before making the investment.
In California, for example, all companies with employees are required to have workers' comp insurance. In Alabama, it’s required as soon as you employ five or more people. In Texas, on the other hand, employers are not required to purchase workers’ comp insurance at all (although they must explicitly inform employees that there is no coverage).
Regardless of your location, it’s a good idea to understand how workers’ compensation insurance can provide financial and legal protection for your business and its employees.
Note: Workers' comp insurance not only covers your employees in case of work-related harm, but also helps protect your business against legal complaints. An employee who collects workers' comp for a work-related accident cannot later file a lawsuit against your company.
Most employees are allowed coverage under typical workers’ comp insurance policies. However, many states exclude the following:
- Business owners
- Independent contractors
- Casual or temporary workers
- Railroad or maritime employees
- Farmers, farmhands and other workers in most agriculture-based work environments
- Employees of private individuals
- Federal government employees (they are covered by the Federal workers' compensation program, but not by the state program)
Workers’ compensation programs generally cover the following:
- Cost of medical care for illness or injury
- Compensation for permanent injuries
- Loss of income during employee treatment/recuperation periods
- Cost of retraining the employee
- Benefits to beneficiaries in case of employee fatality
In addition to injury protection, workers’ compensation can provide coverage for other health issues an employee develops due to frequent engagement in work-related activities. Compensation may consist of regular payments or a single lump-sum benefit depending on the specific employer-employee agreement.