Workers’ Compensation Insurance: What It Is and Why Your Business Needs It
Workers’ compensation (workers comp) insurance is a subject of hot debate. While just about every business with employees is required by law to carry this critical coverage, many aren’t 100% sure why they’re paying for it and exactly what they get out of it.
What is Workers’ Compensation?
In short, workers’ compensation policies pay both medical benefits and wage replacement benefits to employees who are injured on the job. The policy prevents employees from being allowed to sue their employers for negligence, which also means there is no payment for pain and suffering, employer negligence, or punitive damage.
While workers’ compensation plans can vary from state to state, they generally include weekly wage replacement payments, reimbursement for medical expenses (similar to health insurance), and payments for economic loss. If an employee was killed on the job, the policy might also act like life insurance, paying benefits to his spouse or dependents.
The premium an employer pays for workers’ compensation insurance is based on two factors. The first is the type of industry he works within, which dictates the rate percentage he’ll pay. The second is his payroll. The payroll is multiplied by the rate percentage for the total premium. As noted, the industry makes a difference. The rate for a clerical office worker, who primarily sits in an office, will be much lower than that for a tree care worker who suspends in a harness and uses mechanical equipment. Rates can be adjusted based on your company’s personal history, safety initiatives, and accident/claim history.
Why You Need Workers’ Compensation
Simply put, the workers’ compensation system replaced the tort system with an effective method for ensuring that individuals hurt on the job were not left without a way to pay their medical expenses. As an employer, you no longer have to worry about being sued and having a large judgment entered against you for things that have nothing to do with the actual loss itself – no “punishment” for pain and suffering.
North Carolina law requires that anyone with 3 or more employees carry workers compensation coverage and there are stiff penalties for companies who are caught without it, especially if there is an injury. There are a few exceptions. Individuals who are a part of an LLC but who have no employees other than the partners may not have to carry workers’ compensation. Companies who hire independent consultants or freelancers may not have to provide coverage – though there is often a grey area when it comes to who is actually an independent consultant or freelancer and who is treated as a full-time employee.
At the end of the day, workers’ compensation is a critical piece of business insurance you simply can’t go without. Not sure what steps to take next? Give us a call for help. We’ll do all we can to make sure you and your business are protected.