Anatomy

Workers' Comp Basics

By Nancy Potter

Do you need workers’ compensation insurance for your practice? The answer is straightforward: if you have one or more employees, you most likely do.

What Is Workers’ Comp?

Workers’ comp insurance is purchased by an employer to cover the costs of any on-the-job injuries suffered by his or her employees. Employees do not obtain workers’ comp insurance—the employer does.

Employees who are covered by their employer’s workers’ comp policy give up any right to sue the employer for on-the-job injuries caused by the employer’s negligence, since their injury-related costs are paid through the workers’ comp insurance policy.

Who Must Obtain Workers’ Comp Insurance?

In almost every state, employers who have one or more employees (who are not co-owners or partners in the business) are required by law to purchase workers’ comp insurance. The workers’ comp board in each state determines the cost and terms of the policies. Normally, the cost is based on a formula that factors in the risk of injury in that particular profession and the rate of pay. A business with a good safety record can often obtain a discount on its premium.

If an employer fails to obtain a workers’ comp policy as soon as he or she hires that first employee, he or she can be subject to strict penalties and heavy fines. Only a few states, such as Texas, do not require employers to purchase workers’ comp insurance.

How Do I Know if I’m Covered?

If you are an employee in a state that requires workers’ comp insurance, and your employer has complied with the law by obtaining a policy, then you are covered by that policy. If you have reason to doubt that your employer has obtained a policy, you can ask your employer to see the policy, or contact your state’s workers’ comp board.

If you are covered by a workers’ comp policy, then you cannot sue your employer in court for injuries caused by your employer’s negligence. Instead, you must seek recovery for your injuries through your state’s workers’ comp system, usually by filing a claim with the state’s workers’ comp board. However, if you were injured as the result of an intentional or criminal act by your employer, you can still file a lawsuit in most cases.

What About Independent Contractors?

Workers’ comp insurance generally covers only workers who are classified as employees, not independent contractors. If you receive a federal Form W-2 each year, you are being classified as an employee. If you receive a federal Form 1099-MISC, you are being classified as an independent contractor. Whether you should be classified as an employee or an independent contractor depends on numerous factors and is not always black and white. If you have questions about your classification, go to your state’s department of labor website for more information, or contact an employment attorney.

How Do I Get Workers’ Comp Insurance?

Although state governments administer workers’ comp programs, the policies themselves are purchased in the private marketplace from insurance companies. If you plan to hire employees and need to buy workers’ comp insurance, do some research, ask for referrals from colleagues, and try to find a policy that will work best for you and your business.