Introduction to Workers’ Compensation Insurance

Workers’ compensation insurance protects a business owner from claims by employees who experience a work-related injury or illness – either sustained on business premises or due to business operations. In all states, most companies are required to carry workers’ compensation insurance for their employees. You will need a separate workers’ compensation policy for this type of coverage. Check with your state insurance department to see what is required for your small business.

Typically, workers’ compensation covers the employee’s medical expenses, rehabilitation costs and lost wages. If you do not have workers’ compensation and one of your employees is injured on the job, your business may be liable for any medical expenses that individual incurs. You might also face fines and penalties for noncompliance.

According to the Small Business Administration, business owners, independent contractors, domestic employees in private homes, farm workers and unpaid volunteers are usually exempt from workers’ compensation eligibility.

If this is the first time you’re purchasing workers’ compensation insurance, the rate will depend on your payroll and your industry. After a few years, your premiums may be based on the actual experience of your company.