Workers Compensation is a legal necessity for most businesses with more than a few people.
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Depending on the nature of your business and the inherent dangers to you workers or yourself, you may need workers comp even if the company has two employees total. Construction is one industry where there are very strict requirements for having workers compensation insurance. There are several things you should know when dealing with coverage.
What is workers comp?
Workers compensation is insurance just like any other kind. It puts risk you take on in day to day activities onto another company that can better handle it. If someone gets injured in the course and scope of their employment, then they may be entitled to a portion of their wage while they recover. Workers compensation covers this so that the business does not have to cover it themselves. This smoothes the risk out, and makes it less likely that an accident in the workplace may hamper the company's ability to conduct business.
In the end, it is the friend of any small business owner and can help them get through tough times.
Why do you need workers compensation insurance?
There are several reasons you need it, some of which I have listed above. Most importantly, though, is the fact that it is a legal necessity. Some companies operating in high risk industries such as roofing neglect this requirement and can suffer the consequences if they are found out.
One of the reasons that some of these firms do this is that they are using illegal immigrants for labor. This is especially true in the southern portions of the United States.
Recently, a case was investigated by the Special Investigations Unit (SIU) branch of the insurance firm that I work at because of a suspicious workers compensation certificate. Someone who was having work done on their home showed a false looking certificate to the people paying for the work. They looked at the name on the certificate and found the number of our firm online. We had never heard of this company doing their roofing work and quickly investigated.
It is illegal to not have the insurance, but falsifying it leads the company's owner down an even more dangerous path.
What do I need to know about workers comp insurance policies?
Know what you need, legally speaking. It depends on the state you operate in, but usually there is a minimum coverage that is required. Obviously, most small firms are going to take the smallest hit to their bottom line possible. However, if your firm operates in a dangerous sector, it may be worth weighing other, more expensive options if it will mitigate your risk.
Young workers usually hurt themselves with much higher frequency than those that have experience. Depending on how experienced your work force is, there is a level of risk that the insurance company takes on. This will be reflected in the rate structure.
Also, you should know what part of the cycle the insurance industry is in. They go from hard to soft cycles regularly, but do not follow the overall business cycle. Right now, Missouri is a soft market. This means that it is a place people want to write business, and the competition is pushing rates very low.
In a couple years, when companies realize their rates were too low, they will be forced to pull out of Missouri and normalcy will resume. Then, the hard market comes around and Missouri is no longer an attractive state. Having a rough idea of where your state is in the cycle will give you a better idea of how competitive the rate you are getting is. Also, it may motivate you to shop around and see if you can get a better deal.