Q: When and How Should I Sign Up for Workers’ Comp Insurance?

While it may seem daunting at first, new business owners will find that putting workers’ compensation insurance in place is fairly simple and straightforward.

While workers’ comp insurance is an additional cost for a business owner, it does provide benefits for both the employee and the company:

  • Employees receive no-fault insurance against workplace injuries. Medical costs are covered and wage replacement benefits are included under a workers’ comp plan.
  • Employers are protected against lawsuits by employees injured on the job. In most states, workers’ compensation law is seen as a kind of compromise to reduce litigation related to workplace injuries.

Here are a few tips for when and how to put workers’ compensation insurance in place and how to keep the cost down as your business grows.

When to purchase workers’ comp insurance

Workers’ compensation coverage is required by law in most states even when a company has just one employee. In California, it’s required to be in place at the time of the first employee hire. (See CA Code Sec 3200)

How to purchase workers’ comp insurance

In most states, including California, a “state fund” provides a simple and certain coverage option.

Private insurance carriers also offer workers’ compensation products, frequently targeting specific, preferred industries. Business owners can contact a local insurance broker or the State Compensation Insurance Fund directly to bind a policy.

Many payroll companies provide a convenient option as well. Under this option, workers’ compensation insurance is administered through payroll as a deduction. Consult with your payroll company to find out more about this option.

Reducing the cost

There are some exceptions to workers’ comp requirements in each state. In California, you should be aware that coverage is not required for:

  • Sole proprietors
  • Officers of a wholly-owned corporation, and
  • Independent contractors

Taking advantage of these exceptions can help reduce the cost of workers’ comp for your organization, especially for a newly formed company. But be sure to check with your legal counsel or your insurance broker to be sure you meet the requirements for the above exceptions.

For example, workers need to meet the definition of an independent contractor, otherwise you may find that person classified as an employee by your workers’ compensation carrier. (Labor Code 3357 creates a presumption a worker is an employee.)

Workers’ compensation insurance as you grow

As a company grows, it creates a history with regard to employee safety. This safety history – the ration of claims to payroll – becomes a company’s “experience rating modifier” which directly impacts its workers’ comp rates.

To keep your insurance costs low, strive to maintain a safe work environment. For office workers, this may mean being conscious of ergonomic work environments. For companies with 20 or more employees, or with more hazardous exposures, this may involve the implementation of an Injury and Illness Prevention Program(IIPP).

Need help getting started? Reach out to us at Gusto, where our automated workers’ comp service will take care of everything for you.

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