Workers' compensation insurance
The part of the programme that is usually not a choice.
Workers' compensation covers medical costs and lost wages for employees injured at work, and it is the one part of a business insurance programme that is generally not a commercial decision.
Most states require it once a business has employees. The thresholds, the exemptions and the treatment of owners, officers and contractors all differ, so the requirement that applies to you is a question for your own state's authority rather than something to infer from general guidance.
What it covers
Medical treatment for a work-related injury or illness, a proportion of lost wages while the employee cannot work, rehabilitation, and benefits where an injury is permanent or fatal.
It is generally a no-fault system: the employee does not have to establish that the employer did anything wrong, and in exchange the employer is usually protected from being sued directly over the injury.
That trade — benefits without fault, in exchange for limits on suing — is the whole design of the product, and it is why it exists as a separate compulsory system rather than as part of liability cover.
It is not general liability
General liability covers claims by third parties. An employee is not a third party, and injuries to employees are specifically excluded from it.
So a business with excellent liability cover and no workers' compensation has nothing at all for the most likely injury it will ever face, which is one of its own people.
The two policies are bought separately, priced separately and administered separately. Holding one says nothing about holding the other.
Classification, and why it decides the premium
Premium is driven by payroll and by classification — the code describing what your people actually do. Roofing and bookkeeping are priced very differently, and correctly so.
Misclassification is the most common problem here, in both directions. Employees classified too cheaply produce a large bill at audit; employees classified too expensively overpay all year.
Where a business has genuinely different roles, they can generally be classified separately rather than all rated at the highest exposure. That is worth raising, because it is rarely volunteered.
Employees and contractors
Treating a worker as a contractor when they would be regarded as an employee is one of the more expensive mistakes a small business can make, and it usually surfaces at an audit rather than at the point of hiring.
The tests are not set by the insurance policy. They come from employment and tax rules, and a business's own description of the relationship is only part of what is assessed.
Uninsured subcontractors are a related exposure: where a subcontractor has no cover of their own, their people can end up on your policy at audit. Collecting certificates from subcontractors is the routine defence against that.
The audit at the end of the year
Workers' compensation is usually priced on estimated payroll and then audited against actual payroll at the end of the period, producing either a bill or a refund.
So the premium quoted at the start is a deposit rather than a final figure, and a business that grew during the year should expect an adjustment.
Keeping payroll records, classifications and subcontractor certificates in order through the year is what makes that audit uneventful.
Common questions
Most states require it once a business has employees, but thresholds, exemptions and the treatment of owners and contractors differ. Confirm the requirement with your own state's authority rather than assuming from general guidance.
That varies. Owners, officers and partners are treated differently in different places and can sometimes elect in or out. It is one of the specific questions to ask about your own situation.
Because the premium is usually based on estimated payroll and audited against actual payroll. If payroll or classifications changed during the year, the audit adjusts the premium accordingly.
Not if they are genuinely contractors with their own cover. Where a subcontractor is uninsured, their workers can end up rated on your policy at audit, which is why certificates are collected.
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This page is general information, not advice about your specific circumstances. A licensed insurance professional can tell you what’s actually available to you.
General information only, not insurance advice. Coverage, availability, and terms vary by insurer and by state, and are subject to underwriting. Quote My Policy LLC is a licensed insurance producer. Nothing here binds coverage.