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Can Your Small Business Afford Worker’s Comp Insurance?

Injuries happen in the workplace. Some businesses are high risk – those that work with animals, perform construction, or use hazardous chemicals – but even those that pose minimal danger from an operational standpoint still need worker’s compensation insurance. Unfortunately, small businesses may struggle to afford the premiums associated with such coverage.

As with other rising business costs, navigating the cost of worker’s compensation insurance puts small businesses in a difficult position. On the one hand, you might find yourself paying for insurance you don’t need and it could put a strain on your finances, but on the other, you could face a worker’s compensation lawsuit that will drain your coffers entirely. That’s why most consider it preferable to have the insurance if they can pay for it.

There are several things your business should take into consideration when seeking the right policy, and many of those can make a worker’s comp policy more affordable. Here are 3 factors to consider.

Size Matters

Like all insurance policies, how much coverage you need depends on the size of your business but unlike other types of insurance that tend to focus on factors like income, worker’s compensation policies are scaled based on the number of employees. That means that you’ll choose your policy based on the estimated payroll for the upcoming policy period. By keeping a careful count and estimating intelligently, you can keep premiums under control. Just be sure not to underestimate because these policies can and will be audited for accuracy.

Local Rules Vary

Since most small businesses don’t have the staffing level or finances to have HR leadership, it falls to you, as the owner, to do the legwork to determine what your local requirements are. For example, in Texas, businesses aren’t required to have workman’s comp, but that’s the only state where this is the case. All other states have at least some workman’s comp requirements though they vary by the size of the business, the industry, and other factors.

Some states also provide support for worker’s comp insurance policies through their tax framework. California, for example, realized that high property taxes and worker’s comp fees were keeping small businesses from thriving. In order to remedy this, Proposition 30 increased the top income tax bracket in the state to cover some of these costs. This makes California an appealing site for small businesses, despite a generally high cost of doing business in the state.

The Protection Factor

No matter how expensive worker’s compensation coverage seems at the time, it will always be less expensive than going to court because it’s about cost containment and management. When an employee is injured and they’re covered by worker’s comp, insurance covers their injuries and your business moves forward with perhaps a slight rate hike but no additional harm done from a financial perspective.

On the other hand, failing to cover employees through worker’s comp means that they can take you to court – which means more expenses. Court cases may also damage your professional reputation in a way that simply covering the injury wouldn’t and that could be the most serious hit of all to your business. Consider the expenses associated with insurance premiums to be reputation protection to the same extent or more than it is individual worker coverage.

Though the numbers may look insurmountable as you plan your budget, worker’s compensation is critical to long term business viability. This is a big concern for small businesses.

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