Protect Your Workers, But Manage Your Costs
In this economy, small businesses are under pressure to cut expenses. One area to consider is workers’ compensation insurance, which is typically a mandatory coverage for businesses, depending on your state’s requirements. Should a disaster cause injury to an employee on the job, or while performing work duties when disaster strikes, these components of your insurance program will be very important to the recovery of your employee and your business. Workers’ compensation insurance protects employees against the risk of sustaining a job-related injury. It covers medical expenses, disability income benefits, and death benefits to dependents of an employee whose death is job related. Premiums are assessed according to payroll and depend on the industry classification of your business. An advertising firm would pay lower workers’ compensation premiums than a construction company, reflecting the relative risks of injury to employees of those two businesses. That is why it is important that you classify employees accurately for their job descriptions and wages. If you are adding new employees to your payroll, be certain to update your workers’ compensation coverage to avoid incurring an additional year-end charge.
Obviously, the risk of incurring workers’ compensation-related claims increases with the occurrence of a disaster: employees may incur injuries themselves while evacuating the business premises, stress-related injuries and depression and other types of disorders may occur as a result. Be certain that your workers’ compensation coverage is up-to-date. Similarly, employees injured in disasters while on the job may require disability benefits. Certain states mandate coverage for short-term disability for all employees. Check the Web site of your state’s insurance commissioner or consult with your insurance broker to learn the requirements of your state.
I have three suggestions that may help to reduce your workers’ compensation premiums. First, ask your insurance company about merit-rating credits. In most states, small businesses that have favorable claims experiences may be entitled to credits toward their premiums. Second, consider adding a deductible to your workers’ compensation policy. Workers’ compensation typically covers from the first dollar of losses, but most states allow deductibles that will reduce your costs. Finally, consider foregoing coverage for yourself or for other officers or directors of the company. Many states let small business owners and certain officers and directors opt out of their workers’ compensation policy. This would lower costs, but would leave you without workers’ compensation benefits should you be injured on the job. This may make sense if you have medical insurance to pay for medical expenses incurred in an on-the-job injury or other means of financial support, such as a disability income policy, if you or any of your directors and officers were medically unable to work.
By the way, if you are wondering about the image I posted to this blog, it is a photograph of an office building in Brussels illuminated in the evening. It is the headquarters for a labor union organization, which I thought a fitting image for the topic of workers’ compensation insurance.