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Who Needs Workers’ Compensation Insurance?


Workers’ compensation insurance covers medical and rehabilitation costs as well as lost wages if your employees are injured or become ill as the result of their job without regard to fault. Workers’ compensation insurance also provides death benefits to surviving spouses and dependents. Coverage is provided on the premises or off-premises or in an automobile while on business.

If a business carries workers’ compensation insurance, it means that injured employees relinquish their right to sue the business for negligence. Conversely, the employees have the peace of mind that they can recover for work-related injuries or sickness without resorting to a lawsuit.

Any business that has W2 employees or 1099 contract workers needs workers’ compensation insurance. Any employee who works for an employer regardless of classification is considered an employee and is covered under the workers’ compensation policy. This includes full-time employees, part-time employees, independent contractors and contracted laborers. Sole proprietors and general partners are automatically excluded from coverage unless they request the coverage in writing. Corporate officers are automatically covered by the policy unless they ask to be excluded.

Some states don’t require an employee to be covered if he or she works solely on commission. Some states even exclude certain categories of workers, including farm workers, domestic employees, or seasonal or casual workers. In some states, business owners’ immediate family members who work for the business may not require coverage.
Interestingly, a few states, namely Texas and New Jersey, give employers the option to not purchase workers’ compensation insurance at all. It is important to note, though, that just because the state allows an employer to go without workers’ compensation insurance, the employer is still liable under the state’s workers’ compensation laws for injured workers. Not having workers’ compensation insurance, even if allowed by a particular state, does not relieve the employer of financial responsibility for injured workers.

Most states also allow large employers to self-insure for workers’ compensation, but the rules about who can and cannot self-insure again vary significantly from state to state. A general rule is that if you have employees who aren’t owners of the company, you probably need workers’ compensation insurance.

Be careful about contracted employees. Most states will treat an uninsured contractor or subcontractor as your employee if he or she is injured while doing work for your company. An example is if you are a sole proprietor and do not carry workers’ compensation insurance on yourself. Then you hire a plumber to do work in your office. If the plumber does not carry workers’ compensation insurance and is hurt working on your premises, he may come back and make a claim against you. Anyone you hire to do work for your company could be eligible for workers’ compensation benefits from your company. That’s why many larger companies will contractually require anyone doing work for them to show proof of workers’ compensation insurance.

John Gracey Backer, CPA


John Gracey Backer, CPA, is the Treasurer of Gracey-Backer, Inc., an Insurance Agency in Delray Beach, Florida specializing in All Lines of Malpractice, Professional and Personal Insurance for the Healthcare Provider. He can be contacted at 800-272-6055 ext 128, or at john@gbifl.com.

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