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What do I need to know about workers’ compensation insurance?

  • Workers' Comp Basics
  • Coverage

Great question. Here are a few things we think every business owner should know.

1. Workers’ comp isn’t optional.

Workers’ compensation insurance is important for both businesses and employees, so it’s required just about everywhere. If you run a business and have at least one employee, chances are you need workers’ compensation insurance.

What happens if you don’t purchase workers’ compensation for your business? Well, it isn’t pretty.

First of all, many states will consider you guilty of a criminal misdemeanor. That means they can legally shut down your business and impose penalties. Think hefty fines and possible jail time.

Another possibility is that the state would issue a “stop order,” which means that your business would have to stop using employee labor until you purchase workers’ comp.

If your employee actually suffers a workplace injury while you’re not insured, things get even worse. First, your business will be liable for paying for all bills related to your employee’s injury. Plus, your employee will have the right to file a personal injury claim against your business. And if you’re found guilty, you’ll probably have to pay a lot.

Don’t chance it. If you have employees, you should definitely buy workers’ comp. Considering the alternatives, it’s a great deal.

2. Your workers’ comp payment depends (mostly) on your payroll.

The biggest single factor in the price of your workers’ comp policy is the size of your payroll. When your payroll goes up, your workers’ comp policy will go up. It’s pretty much as simple as that. In the state of California, for example, the average cost for workers’ comp is about $3 for for every $100 of payroll.

Of course, there are several other factors that affect your price, such as industry, location, and safety record, but payroll size is the big one.

3. You don’t have to decide workers’ comp limits.

Workers’ compensation insurance is not like buying car insurance. There are really no decisions for you to make. All the financial limits have already been set by your state, so there’s not much to think about.

A minor exception to this is a coverage called Employers Liability. It basically protects your company if it is sued by a third party after an employee injury. It’s a pretty rarely used coverage and barely adds anything to the cost of your workers’ comp policy.

Although adding Employers Liability coverage technically involves selecting limits, some small business insurance online providers set predetermined limits. In which case, you still won’t need to make any decisions. Nice.

4. Workers’ comp is actually pretty simple.

“Workers’ compensation insurance” is a long, intimidating name for a coverage that, in reality, isn’t very complicated.

Since there really aren’t any decisions involved, getting covered is simple. You just provide some information about your company, get a quote, and purchase a policy. (Be aware, though: if you’re using a traditional insurer, it can take up to a few weeks to get through the process.)


All content on this page is for general informational purposes only and does not apply to any specific case, is not legal, tax or insurance advice and should not be relied upon. If you have any questions about the situation for your small business or the latest information in your state, you should contact an attorney for legal advice, an insurance agent or broker, and/or your state's labor or industry agency, board, commission or department. Please note that the information provided on this page may change at any time as a result of legislative action, court decisions or rules adopted or amended by any state or the federal government.

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