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

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

While workers’ comp costs extra for a business owner, it is a necessary—and legally required—expense that’s worth getting separate from employer’s liability insurance, because it does provide benefits for both the injured worker and the company:

  • Employees receive no-fault insurance against workplace injuries. Medical expenses are covered and wage replacement benefits are included under workers’ comp benefits. It can also pay death benefits to employees’ families. 
  • Employers are protected against lawsuits by any employee who receives a work-related injury. In most states, workers’ compensation law is seen as a kind of compromise to reduce litigation related to workplace injuries. But keep in mind that employees may be able to sue outside of the workers’ compensation system in some situations, so you should also have general liability business insurance in place as a best practice.

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 (unless you qualify for an exemption), even when a company has just one employee, whether full-time, part-time, seasonal, or occasional. 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 a workers’ compensation policy

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

Private insurance carriers also offer workers’ compensation benefits, frequently targeting specific, preferred industries. Business owners can contact a local insurance agent or your state’s workers’ compensation board to bind an insurance policy.

If you’re self-insured, you’re in charge of paying the benefits for the claim in full. (Usually, certain big businesses are allowed to be self-insured.)

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 workers’ compensation insurance cost

There are some exceptions to workers’ comp requirements that can vary according to state laws. 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 exclusions 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 company 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’ comp policy. (Labor Code 3357 creates a presumption a worker is an employee.)

Workers’ compensation insurance coverage as you grow

As a company grows, it creates a history with regard to workplace safety. This safety or claims history—the ration of workers’ compensation claims to payroll—becomes a company’s “experience modification rating” which directly impacts its workers’ compensation insurance cost.

To keep your workers’ comp claims and insurance premiums 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 workers, or with hazardous exposures, this may involve the implementation of an Injury and Illness Prevention Program (IIPP). According to the Occupational Health and Safety Administration (OSHA), there are also recordkeeping requirements for serious work-related injuries and illnesses based on a minimum number of employees, though certain industries are exempt.

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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