How Small Businesses Can Survive Workers Compensation
Workers' compensation insurance is a major expense for small business. If you shop carefully and have a safe workplace, you can keep your costs down.
For many small businesses, workers' compensation insurance is one of the costliest requirements of being in business. This state imposed program can be a major expense, and a major hassle, when trying to get a business set up, and no matter how long you have been in operation, the annual premium check to an insurance company ranks right up there with taxes as a significant annual drain on your profits.
Is there nothing you can do to lower your workers' compensation costs? Sure there is. But in order to make the best out of a difficult situation, you as a business owner have to take matters into your own hands and follow a few steps that will certainly help keep your costs down. It won't be easy, and even though it may seem you have no time to do these things, if you make the time, the payoff will be handsome at the end of the year.
The first problem facing many small business owners is whether your co-worker is an employee or an independent contractor. This is a critical issue in certain professions, such as contracting, landscaping, or automobile repair. Since the law on independent contractors varies from state to state, take the time to find out just what it takes to have a co-worker be an independent contractor. Do not rely on your insurance agent or company to tell you which is which. More important, make certain that you talk with either a government agency or an employment attorney to understand the ins and outs of employment law. If you are right, then you will save thousands of dollars in costs, because independent contractors are not subject to workers' compensation laws. If you are wrong, however, you will face not only the costs of insurance, but civil and possibly criminal charges levied against you by a host of state and federal labor agencies.
If you run a restaurant, bookstore, or ".com" business, chances are that your co-workers are employees and you will have to buy workers' compensation insurance. That does not automatically mean that you are consigned to a life of poverty as every last dollar is spent on taxes, permits, fees, and insurance premiums. The first order of business is to find the right insurance company. Talk to your competitors who are in the same kind of business. Ask them where they are getting the best deal for insurance. Chances are that there is at least one company out there (unless you live in one of the five states that have no private insurance companies doing business) that specializes in writing workers' compensation insurance for your type of business. They can probably give you the best deal. When shopping for insurance, always ask an Independent Agent to work for you.
Second, if you are a start-up business you are going to have to pay more because you are an unknown commodity to the insurance company. It will normally take three years before you can have the benefit of your safe workplace get reflected in your insurance rates. The first three years you are in business is very important. The fewer injuries you have in the workplace the better off you will be, both at the start of doing business and throughout your business ownership.
During this time, it is also important to make certain your insurance company assigns your employees with the right occupational classification. Certain categories of employment have higher wages, and more injuries, than others. If your insurance company misclassifies your employees, it could cost you hundreds of dollars. Your agent should also be able to help you with this process.
Third, the bottom line is that the fewer accidents you have, the lower your insurance costs will be. That may sound too obvious, but one of the reasons we have the complex workers' compensation laws we have in this country is that many employers do not take the time or make the effort to provide a safe workplace. It costs everyone when employers, no matter how small, do not take the time to provide a safe workplace and - equally important - do not make the effort to help their employees get back to work when they are injured on the job.
Finally, help your employee get back to work. This is especially difficult for the small employer. If you are subject to the federal Americans with Disabilities Act (ADA) then you may have to make a reasonable accommodation to assist your injured employee get back to work anyway. Nevertheless, if you simply jettison an employee like a piece of baggage when he or she gets injured on the job, then that individual claim will languish in the system for years, bogged down with issues of permanent disability, vocational rehabilitation, and more and more medical treatment. All of these issues will add up for you the employer, too - with increased premiums and an experience modification (a requirement in most states that raises or lowers your premiums based upon comparing your claims to the claims of others in your line of business) that will be an albatross around your neck for years.
You are required to have workers' compensation coverage for your employees. If you take the time to comparison shop for insurance, make the effort to have a safe workplace, and get your injured employee back to work, however, chances are that your workers' compensation insurance premiums won't be as big a bite out of your bottom line.