As a business owner, you have a lot of responsibilities. One of these responsibilities is to protect your company against potential personal injury awards and associated litigation costs arising from claims filed by employees alleging that you or an employee hired by your company negligently injured them while they worked within the scope of employment with your company.
What is workers’ compensation insurance?
Regulated by each state, workers’ compensation insurance pays medical bills and lost wages for employees who suffer work-related injuries or illnesses. In Texas only, after providing certain prescribed notices, an employer can elect not to provide workers' compensation insurance and become what is routinely described as a "non-subscriber." As discussed below, there are numerous inherent risks associated with being a non-subscriber. In all U.S. states except Texas, businesses are required to purchase workers’ compensation insurance, which provides several types of benefits:
Medical benefits for treatment of work-related illness or injury
Funeral expenses and death benefits for employees killed on the job
How workers' compensation protects your business and employees
1. The purchase of workers’ compensation insurance strictly limits an employer’s legal and financial liability in the event of a work-related injury or illness.
Before the advent of workers’ compensation insurance, employees who became ill or injured on the job filed personal injury lawsuits against their employers. Except for instances where an employer's gross negligence causes an employee's death, workers’ compensation coverage eliminates these lawsuits and limits what the employer may be required to pay.
2. Without adequate workers’ compensation coverage, injured or sick employees can sue employers for damages, leaving businesses vulnerable to fines, lawsuits, and substantial judgments.
It’s important to note that only employers who purchase workers’ compensation insurance receive protection from personal injury lawsuits. If you choose not to purchase a workers’ compensation policy and an injured employee decides to sue, your business could be legally obligated to pay damages and fines in amounts that could bankrupt a small business.
Businesses may expect to pay:
Medical expenses and lost wages
Fines for not complying with laws requiring workers’ compensation
Damages incurred by the employee, including compensation for pain and suffering, loss of life enjoyment, and punitive damages
3. Workers’ compensation insurance demonstrates the employer is responsible and cares about its employees.
Workers’ compensation signals that a business is prepared to do the right thing for employees on its own, without being forced to do so by litigation. Employees of a business that has workers’ compensation coverage receive help with medical bills and wage replacement immediately, without having to wait for a court judgment.
While we might think of workers’ compensation as insurance needed mostly for dangerous, physical jobs, consider this: according to the Insurance Information Institute, “the leading cause of workers’ comp death claims is traffic accidents that occur when the employee is in a vehicle for work purposes, whether the trip is made in the company’s car or the employee’s own vehicle.” Given car accidents on company business, simple slip and fall accidents, and everything else that can go wrong in a day’s work, protecting your business and employees with workers’ compensation should be a top priority.
Since workers’ compensation laws vary by state and the systems are state-regulated, you’ll want to check with the U.S. Department of Labor or talk to an attorney to find out details in your state.