Workers‘ compensation coverage is an insurance policy that protects employees under state laws and provides medical care, death, disability, and rehabilitation benefits for workers who are injured or killed while on the job
In many states you are not required to carry the coverage until you have a certain number of employees. Does this mean you don’t need the coverage? The short answer is no. It is an expensive policy but one that really protects you and your employees. We always tell startup businesses to make this one of their 1st priorities, once they can afford the coverage.
Workers compensation insurance is not competitive, so it’s not something you’ll be able to shop around and find a better rate. It’s rated based on payroll, the work completed, and there’s an experience modification rate (EMR). The EMR has a strong impact upon a business. It is a number used by insurance companies to gauge both past cost of injuries and future chances of risk. The lower the EMR of your business, the lower your worker compensation insurance premiums will be.
Workers compensation insurance is audited so at the end of the year (policy expiration) an audit will be sent to you. The insurance company will ask you to provide numerous documents to ensure you’re premium and risk were what was initially put into place. If you end up with an additional employee and did not make that change during the year, you’ll most likely owe an additional amount.
Here’s a big one: If you have sub-contractors that work for you, but they do not carry workers compensation insurance, their income received by you will go into your payroll category and you’ll owe for workers compensation coverage for them. If they carry their own coverage, their income won’t count.
Did you know you can carry a ghost policy? A ghost policy is for an Owner only company that is setup as an LLC. On this type of policy, you’d exclude the Owner but have a worker’s compensation policy to satisfy the need of a job. You’re essentially paying a premium but have no coverage if a loss occurs. Now why would you do this, is probably what your asking. People do this because a ghost policy can be quite a bit less than putting the actual coverage in place on the Owner. Remember its based on the work done and the payroll number. The Owner tends to be the highest paid and as you’re growing your business some times you just can’t afford the premiums.
If you have any questions or concerns please reach out to us. Workers compensation insurance is probably one of the more intricate policy types and again, one of the more expensive policies as well. We’re always here and happy to help…a quote can be a great place to start so you can see what it looks like for you and your business.