7 Myths About Workers’ Compensation Insurance

08 Jun 2016

Reuben Dourte

Reuben Dourte is an account executive at Ruhl Insurance, specializing in farm and agribusiness insurance. Reuben joined Ruhl Insurance in 2012 and received certification for Accredited Advisor in Insurance (CAAI) in 2015.

Many small business owners dread the thought of investing in workers’ compensation insurance.

As a business owner, it’s important to analyze expenditures to ensure your decisions are as cost-effective as possible. If your company is also an employer, however, workers’ compensation insurance is one decision that has likely been made for you, as most states require some level of coverage.

There are plenty of misconceptions about the requirement, though, so it’s easy to be confused. Debunking these seven common misconceptions should help clear things up:

My business isn’t big enough

Just because you can count the number of employees you have on one hand doesn’t mean you don’t need workers’ compensation insurance. States across the U.S. require any business with at least one employee to cover their workers with a workers’ comp policy.

My industry is low-risk; I don’t need workers’ compensation insurance

Your workers may sell mattresses for a living, but even the fluffiest bed won’t always be there to catch them when they fall. What if they trip and fall into a headboard or twist an ankle in the break room? The good news is that insurance companies do take your industry’s risk level into consideration when calculating your premium. If you run an office business, your workers’ compensation insurance premium is likely to be significantly lower than if your employees are skyscraper window washers.

I run a team of professionals; we don’t need it

Your team members may have all the training in the world, but not even they can predict the future. Accidents are unexpected and are not always caused by employee error. An employee can slip on a patch of black ice in your company parking lot and break a hip. Guess what? Your business is liable.


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My team is like a family; they’d never sue me

If you’ve established healthy relationships with your employees, you can’t fathom the idea of them suing you for getting injured on the job. But consider this: if an employee who wouldn’t sue you suffers a fatal wound or grievous injury on the job and you don’t have workers’ compensation insurance, you may get slapped with a lawsuit by the employee’s family members. Can you afford to take that risk? Additionally, you have a moral responsibility to your workers to protect them and their family from financial hardships and medical bills after an injury.

My business taxes pay for workers’ compensation insurance

States do not automatically provide businesses with workers’ compensation insurance policies; even in states where state-run workers’ comp funds exist. These policies are still separate from corporate taxes. The advantage of shopping for a workers’ comp policy with a private insurance company is finding a policy that fits your budget and needs.

The payroll service I use provides workers’ compensation

Unless you have a copy of the policy, and see the premiums as a line item on your monthly payroll bill, don’t assume your payroll company provides coverage on every account. Payroll companies help in withholding federal and state taxes as well as Social Security and Medicare taxes, and many offer workers’ comp packages as an added service. However, they are not required by law to include workers’ compensation insurance for every customer. There are no unwritten agreements in the insurance world.

Paying employees on a 1099 makes them independent contractors

There are multiple criteria that must be met to qualify as a true independent contractor, regardless of how one is compensated. Compensating non-independent contractor employees as independent contracts has tax ramifications. In addition, doing so doesn’t automatically exclude you from being liable to that person in the event of a workplace injury. With a few exceptions, an employee paid on a 1099 does not remove your obligation to carry workers’ compensation.

If you think you are already covered, or you believe that you simply don’t need workers’ compensation insurance, it’s time to take a hard look at your company’s situation and reconsider your priorities for the well-being of your business and its employees. As a small business owner, you are liable for almost anything that happens on site. Avoiding coverage is not an option.

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