Workers compensation insurance: Who needs it and how does it work? 

What is workers comp insurance? 

Workers compensation insurance protects business owners and employees if an employee injures themselves on the job or has a work-related illness.

How does it work?

When an employee gets injured on the job, or contracts an illness because of their job, the business owner files a claim with their workers compensation insurance carrier. If the claim is covered, the carrier pays for the costs associated with the incident. These costs include the worker’s medical expenses (regardless of whether the worker has health insurance or not), and a percentage of their wages for the period of time they cannot work.

Most states require business owners to carry workers compensation insurance, with the exception of Texas. But even in Texas, most businesses have workers compensation insurance to protect themselves and their employees should anything go wrong. You could face fines if you are not carrying workers compensation insurance in a state that requires it.

Related: 6 Things all business owners should know about workers compensation

Do I need workers compensation insurance?

If you’re not sure if you need workers compensation insurance, ask yourself these questions. 

• Are you about to hire your first employee?
• Do you have one or more full-time employees?
• Do you have one or more part-time or seasonal employees?

If you answered yes to any of these questions, then your business needs workers compensation insurance. 

What are the benefits of workers comp insurance?

The benefits of a workers compensation policy are many. 

• It protects the business owner from paying medical costs and lost wages out of pocket if an employee is injured on the job or experiences a work-related illness. 
• It protects the employer from fines for not having the appropriate insurance coverage. 
• It covers employees’ lost wages if they are out of work for a period of time due to an injury they sustained on the job. 
• It covers on-going care costs if an employee is injured on the job and requires medical care over a prolonged period of time.
• It covers funeral costs if a work-related incident results in the death of an employee.

When should a workers compensation claim be filed?

The short answer is, immediately. In order to protect yourself and your employees, it’s best practice to notify your insurance carrier the moment you think you have a workers compensation claim on your hands. If you’re not sure if an incident qualifies as a workers comp claim, check out these examples of workplace injuries. 

Related: How to file an insurance claim

Is a 1099 employee covered by workers compensation?

Many businesses hire employees under 1099 contracts. In general, these types of employees are not protected under a workers compensation policy because 1099 employees are technically self-employed. However, the guidelines vary by state. 

If you are self-employed and operate under a sole proprietorship, you may want to get workers compensation insurance to cover any injuries you may sustain on the job.  

For instance, take a mechanic who works for themselves. If they sustain an injury on the job, their health insurance could deny the claim, deeming it a work-related incident and thus not covering any medical bills. The mechanic is on the hook for any medical bills if he or she doesn’t have workers comp insurance. Their workers compensation insurance could also pay a percentage of the income the mechanic would have made during the time they are out of work, recovering from their injury. 

Other ways to protect your business

If you’re looking to cover your bases when it comes to protecting your business, this article on what kind of insurance does your small business need can help you get started. For additional resources to protect your business, check out the Protect Your Business page.