Workers' Compensation Policy Pitfalls: How to Protect Your Small Business
As your small business expands, this growth often brings with it new challenges. As you take on employees to help manage your growing business, you'll also need to make sure you and your workforce are adequately protected in the case of a workplace injury with a suitable workers' compensation policy.
When choosing a workers' compensation policy for your company, there are several potential pitfalls to navigate. Improper coverage can result in excessive liability, fines, and unprotected employees. To avoid major pitfalls with workers' compensation insurance, consider the following steps.
1. Find an agent who specializes in workers' compensation insurance.
While you might be familiar with workers' compensation, understanding the nuances of a complex workers' compensation policy can be a different challenge. Be sure your chosen insurance provider is knowledgeable on the current state and federal workers' compensation requirements that apply to your business. The best way to ensure this is by finding a reputable agent who can guide you through the process of selecting an appropriate policy for your business. Your agent can also research your individual state requirements and notify you when regulations or statutes change that could affect your coverage needs.
2. Calculate your business liability.
One misconception about workers' compensation insurance is that it's only designed to protect employees who are injured on the job. While that certainly is a major purpose for requiring coverage, it is not the sole purpose for the policy. A thorough policy can also provide liability coverage to the employer – coverage that protects the business assets if an employee were to sue the company for damages resulting from an accident or disease on the job. While the terms of what is covered and how much protection is provided varies from policy to policy, it's important to calculate your liability before deciding on a plan. Ask yourself:
- What is the value of my business assets?
- Could I also be held personally liable in the event of an incident?
- How many employees could potentially be affected?
- How do I plan to move forward with my business in the event of a catastrophic incident?
Working directly with your agent to answer these and other questions can help you identify the best amount of coverage needed for your business.
3. Mitigate your risk.
Some insurance providers offer discounts for demonstrating that you are proactively working to prevent workplace accidents. While OSHA (Occupational Safety and Health Administration) regulations outline some steps for keeping your workplace safe, these should be considered the minimum required safety standards for your business. Review this primer on safety in the workplace, and explore any actions you can take to keep your employees safe and healthy while on the job. Investing in slip-resistant floor coverings or purchasing added safety equipment, for example, is worthwhile, particularly compared to the thousands of dollars that could be lost if an accident occurs.
4. Review annually.
Every state has its own workers' compensation official, and each state office can set state-specific standards of what coverage is required for small business owners. If your business operates in multiple states, that could involve different levels of coverage required in different locations. Moreover, these state requirements can change from year to year. Once you've found a trusted agent, be sure to schedule time for an annual review. This can help you to avoid the unwanted pitfalls of hefty fines from the government for not meeting the minimum workers' compensation policy standards.