Business insurance and workers compensation

The idea of paying workers who are too injured or ill to continue working has always been a little controversial. We are rooted in the common law idea that employers only pay for another’s misfortune if they are at fault. It’s all to do with the due process clause in the Constitution where courts are supposed to test whether the employer is properly liable. But, thanks to the Supreme Court, compensation laws have been around for a hundred or so years, with all states now having varying degrees of protection for employees and subcontractors. You will have to refer to your own state for details of the local rules. The general effect of these laws is to provide a no-fault basis for the payment of money to employees who are unable to continue working.

There are two limbs to the protection. The first are the formal Workers Compensation policies, some of which are provided by private insurers and others by the state. These cover the type of injuries that come from the working environment and the actual tasks performed. So, if oil or grease gets on the floor and someone slips, this is covered. Similarly, if you pay someone to operate a machine or assemble parts into a completed product, injuries caused by the machine or by handling the parts are also covered. The second are the Employers Liability policies which cover situations where the employer may have contributed to the situation in which the employee is injured. So, for example, if the machine works more slowly because of a safety guard, an instruction to the employee to operate the machine without the guard will potentially make the employer at fault.

Most laws apply when you employ two or more people. Remember that, if you have set up a company, you are an employee even though your name appears as a director. So, for most practical purposes, you should assume you are caught by the law the moment you get someone else to help you. Although the tax laws usually make a distinction between employees and subcontractors, the majority of states require cover to protect everyone who does paid work for you. This includes those who go out to make deliveries to your customers and those who are employed by subcontractors to work on your premises. The other bad news is that the penalties for not putting the right insurance in place can be heavy should someone uninsured be injured. Most states ensure your business pays out on all claims made by an injured employee. If your business cannot afford to pay, you are out of business.

In consultation with your business insurance advisor, you should check the coverage is adequate for all the states in which you have employees. The benefits must be sufficient to pay medical expenses, weekly benefits for lost wages and lump sums to offer a cushion should there be long-term disabilities. If your employees may travel outside the US, you will need special cover. As a final reminder, the insurance carrier has the right to audit your financial and tax records to ensure compliance. Even small business insurance may be audited. Not keeping proper records can get you into trouble.

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