3 Things Business Owners Should Know about Workers’ Comp

3 Things Business Owners Should Know about Workers’ Comp

A small business owner operating as a sole proprietor or the director of an LLC doesn’t have to worry about things like workers’ compensation just as long as there are no other employees on the payroll. But as soon as that first non-family employee is hired, things change. The need to purchase workers’ compensation insurance is one of them.

Dallas-based BenefitMall is a company that offers pay-as-you-go workers’ comp solutions among its list of payroll and benefits administration services. They say that workers’ comp can be a strain on any company’s bottom line, which is why a customized pay-as-you-go solution can be a better option.

Whether a small business chooses pay-as-you-go workers’ comp or a more traditional policy, going into it blindly is not wise. Here are three things every business owner should know about workers’ comp:

1. It Is Probably Required

Though there are a few exceptions, nearly every state requires employers of a certain size to purchase workers’ comp insurance to protect employees in the event of a workplace accident. Even in cases where workers’ comp is not required, it is still a good idea to have if a business employs anyone who is not a member of the owner’s immediate family.

Not having workers’ comp insurance opens a business up to civil litigation in the event of an accident resulting in injury. It only takes one lawsuit worth a few million dollars to remind business owners that workers’ comp is a lot cheaper.

2. Employees Don’t Have to Accept Payments

Injured employees offered workers’ comp payments can choose to accept or reject them. Why would someone reject payments? Because they intend to sue their employer instead. As uncomfortable as this sounds, civil litigation is a reality in the society in which we now live. Workers who believe they stand to gain a much bigger payout only need to be encouraged by a lawyer to forgo workers’ comp in favor of a lawsuit.

3. How Premiums Are Calculated

Workers’ comp insurance is similar to all other forms of insurance in that it is based on a risk/reward scenario. Insurance companies measure the amount of risk they are taking by covering a particular client compared to the amount of revenue they stand to generate via premiums. The higher the risk, the higher the premiums.

Workers’ comp premiums are calculated based on the size of a company, its total number of employees, its location, the kind of work the company does, and a past history of workers’ comp claims. Companies that present a higher risk when all factors are combined pay more.

Protect Yourself

It is important that companies not take workers’ comp insurance lightly. Insurance is the only way to protect both the company and its employees in the event of an accident that results in bodily injury. And for the record, workers’ comp fraud does occur. Employers have to be diligent to investigate all accident claims.

A fraudulent workers’ comp claim can be the result of a made-up injury or illness, an exaggerated injury or illness, or an injury or illness that is in no way related to work. According to a 2014 report from ABC News, as many as 2% of all workers’ comp cases involve some sort of fraud.

Workers’ comp is part of doing business in America. If the law requires your business to have it, understand that you can shop around for the best possible rates. And if you are not required to carry it, workers’ comp is still good idea when you employ anyone outside your immediate family.

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