Before I took over my father’s business almost three years ago, workers’ compensation was not high on my list of concerns. I saw that we had it, sure—but it was just one item on an endless list of minutiae I needed to understand to keep the business running smoothly.
Then one of our oven operators burned his hand pretty badly in an accident, and suddenly it moved to front-and-center of my very cluttered, busy mind.
But first, what is workers’ compensation?
This is insurance purchased by the employer to cover costs related to employee injuries that happen in the workplace or on the job. Depending on where you’re located, your business may be required to provide it.
Why workers’ compensation is important for small business owners to understand
Until my father’s unexpected death in March 2016, I made my sole living as a freelance journalist. I spent more than 15 years successfully running the operation with one employee—me! I knew on that simple scale how to manage contracts, negotiate wages, buy life and liability insurance, and, mostly, get paid on time.
Then my family suddenly turned to me to also manage a 365-day-a-year wholesale bagel manufacturing operation with $10,000 a week in payroll, three delivery vehicles, and sales of more than $1 million a year.
The aforementioned employee’s hand injury was a crash course in how workers’ comp insurance works and why it matters so much.
The injury wasn’t catastrophic—it was tended to at a hospital and required a few weeks of healing before our baker was back—and in the end it didn’t spike our policy premium. But if we weren’t insured properly and had to pay these medical expenses out of pocket, even a minor situation could have been devastating for us.
3 things I learned about workers’ comp when I started running my business
Things turned out OK, but there are a few things I wish I’d known before dealing with a workers’ compensation incident for the first time.
1. Even if your employee has health insurance, it doesn’t mean their work-related injury is covered.
Insurance providers are well known for looking for someone else to pay if at all possible. We don’t provide health insurance coverage for our workers, but I still naively assumed that a physical injury like a burned hand could be handled by the coverage our baker had through his wife’s job. Instead, his health insurance carrier advised our employee to file a workers’ compensation claim.
This is known as subrogation, and it can happen in a wide variety of circumstances. If an employee is injured in a car accident using a personal vehicle for a work-related task, his auto insurance carrier may also turn to the company’s workers’ compensation policy to pay out.
2. When a workers’ comp claim will fly, and when it won’t.
We didn’t dispute the burned-hand claim for several reasons, not the least of which was the incident wasn’t that bad or expensive. The injured baker has also been with us for years and is a key part of our team. Getting picky with him over who should bear responsibility would literally add insult to injury.
Still, the incident educated me as to what would qualify—and what wouldn’t—for a workers’ comp claim.
|What usually qualifies:
Work-related injury. A physical injury an employee sustains while doing a job safely and properly is usually grounds for workers’ compensation. Sometimes an employee’s conduct when they were injured can negate the coverage—like if they misused equipment in a dangerous way even after being trained.
Conditions caused by work environment. Many employees have successfully filed claims for medical costs and lost wages for physical problems brought on by poor working conditions, like non-ergonomic setups and long-term chemical or environmental exposures that can be shown to have resulted in illness.
|What doesn’t typically qualify:
Injuries to independent contractors. Under most circumstances, contractors are not eligible to file workers’ comp claims.
Offsite injuries. Employees who are injured during their commutes, even when driving a company-owned vehicle, usually can’t file claims, either.
Self-inflicted injuries. Employees injured on the job due to their own negligence, misbehavior, or substance abuse are generally rejected when they attempt to make workers’ comp claims.
Job-related stress or emotional injuries were not previously covered, but that is changing rapidly. These claims can be harder to prove, but courts have accepted evidence of a notoriously hostile work environment or a history of unaddressed sexual harassment incidents in a given workplace more and more in recent years to uphold claims.
3. Finally, there are a few things you can do to save thousands of dollars on workers’ compensation payments.
Some of my father’s best practices have saved our business thousands in potential fines and payments.
Take safety seriously.
It’s no accident (pun intended) that I’ve only faced one claim in the two-plus years I’ve been in charge. My father was a stickler for safety, so he took to the internet to find a local industrial safety firm to observe the operation for a day and assess the present dangers. Then he organized a required two-part training session in which every employee got an overview of how to behave and what to wear around various machines and ovens, as well as how to lift and carry heavy items.
Bonus: Some workers’ comp carriers provide discounts for such proactive effort, so check with them and talk to your insurance broker.
Two strikes, you’re out.
My father took this so seriously that when he caught a pair of relatively new employees who had been through the training horsing around near the vat that boils the bagels, he warned them they would be fired if he saw such behavior again. A few months later, when one of the offending duo played a prank on a different employee near one of the ovens and caused her to nearly fall over, Dad fired him.
At the time I thought it was a harsh response, but it did set a tone that probably averted accidents and saved us money. As with most insurance, avoiding claims is the best way to keep premiums as low as possible.
Know the law and read your bills.
At the end of each year of a workers’ comp policy, an auditor reviews employment records to determine if the company paid too much or too little. The first time this happened to us after my father’s death, our carrier found we owed about $1,000 for the prior year. I was new, so I just assumed such overages were normal. Then, in the second year, the auditor said we owed about $2,000 for the previous year, so I started asking questions:
If our payroll company pays our workers’ compensation carrier in proportion to the wages of any given week, why weren’t we paying enough all along to avoid this problem?
The answer: We didn’t file to exempt corporate officers, so the workers’ comp carrier assigned them a minimum salary and then retroactively charged us for their coverage. Of our corporate officers, only one is hands-on in the bakery and on the road, so he needs to be covered. The rest of us don’t.
The rules regarding who must as a matter of law or choice be covered vary from state to state and policy to policy, so be sure you ask your carrier or your insurance broker or look it up online. Filing those exemptions will prevent these unpleasant and costly audit surprises.
Learn everything you can about your local workers’ compensation laws—the National Federation of Independent Business (NFIB) offers a handy state-by-state thumbnail of the rules. And EINSURANCE.com provides an excellent workers’ compensation portal comparing prices across carriers.
I was given a charge by my family to keep this small-margin business going for the sake of supporting my widowed mother so that my siblings and I didn’t have to. To do that, I need to make sure our employees are handling their tasks in the safest manner possible—and if an accident happens, we have a cost-effective and reasonable way to take care of them.
Many small businesses can’t afford to provide a lot of the perks of larger operations, from health insurance to retirement plans—but workers’ comp insurance is one way to protect both them and your business.