A general contractor’s guide to Worker’s Compensation insurance

July 27, 2020

A general contractor’s guide to Worker’s Compensation insurance

Businesses with more than one employee are in many states required by law to purchase workers compensation insurance policies, which can protect workers and businesses alike from harmful bills associated with work-related injuries.

You may want to consider purchasing workers’ compensation insurance even if your state does not legally mandate that you do so. If you’re new to the concept of workers’ compensation, though, doing so can seem intimidating — and confusing, too, considering the variance between state-dictated mandates around workers’ compensation insurance.

Not sure about what workers’ compensation insurance is, how it could benefit your company or if you’re legally required to purchase it for your business? Read on.

What is workers’ compensation insurance?

Workers’ compensation is a type of insurance that provides medical treatment and wage replacement for workers injured on the job. Workers’ compensation is not a replacement for standard health insurance — it is supplementary protection for employees.

Do I need to purchase workers’ compensation insurance for my business?

Workers’ compensation regulation varies by state. The majority of states do not require sole proprietors to purchase insurance for themselves. Most do legally require businesses with at least one employee to purchase workers’ compensation insurance, though there are exceptions — Texas, for example, has no workers’ compensation insurance mandate except for private businesses contracting with government entities. Alabama does not mandate workers’ compensation for businesses with less than five employees.

Check with your state government to determine the required parameters for workers compensation insurance in your state. It’s important to note that workers’ compensation insurance acts as a safeguard for both employees and employers — you may choose to willingly supersede the coverage mandated by your state government in order to protect your business and employees.

How does Workers’ Compensation insurance work?

No business — and certainly no business within the construction industry — is ever risk-free. Without workers’ compensation insurance, you or your business could be forced to pay the cost of medical care out of pocket. Workers’ compensation insurance will cover the cost of medical bills and lost wages for employees injured in the workplace. Some policies also provide death benefits for beneficiaries in the event that a worker’s injury proves fatal.

Laws vary state by state, but typically employees must prove a direct correlation between their injury and their workplace, or must prove the injury occurred because of the workplace. Employees must report their injury to their employer — ideally as soon as possible. Employers can appeal claims they believe to be fraudulent.

How do I go about purchasing workers’ compensation insurance?

You can purchase workers’ compensation through a broker or an agent, or directly from an approved insurance carrier. (If you’re unsure about the best policy for your company or feeling confused about the process, utilizing brokerage services might prove helpful.)

Some states also offer businesses the option to purchase insurance directly from state-funded Workers’ Compensation insurance programs. Check your state regulations to learn about what will be required for your business.

Requirements for general contractors vary by state — check with your state’s Workers’ Compensation Board or Department of Workers’ Compensation for details. You may be required to purchase a coverage minimum in the process of obtaining your general contractor’s license; again, requirements vary.

How has Workers’ Compensation insurance been impacted by COVID-19?

A few states have expanded workers’ compensation insurance to include COVID-19 as a work-related illness. California and Kentucky have created legislation that presumes essential employees sickened by COVID-19 caught the virus at work, which places the burden of proving that was not the case on employers.

Some states have not moved to alter regulation around workers’ compensation insurance. Verify any pandemic-related impact on workers’ compensation in your state with your carrier or insurance agent, or with state officials.