Workers' Compensation: What Small Business Owners Should Know

Most small business owners must carry workers’ compensation insurance to cover medical expenses and wage benefits for work-related injuries.

The following article is an overview of workers’ compensation, employer requirements, and how to handle claims. For specific information about workers’ comp in your state, contact a local employment law attorney.

Overview of Workers’ Compensation

Workers’ compensation provides medical care and partial wage payments to employees following work-related injuries. Benefits include:

• Medical care
• Wage loss benefits
• Disability benefits
• Death benefits for fatal employee injuries

Workers’ comp is a no-fault system, meaning that injured workers don’t have to prove that their employer was liable for their injuries in order to get compensation. As a trade-off, workers who claim workers’ comp generally can’t file a personal injury claim against their employers, unless the employer is liable for intentionally or recklessly causing injuries.

Workers’ Comp Benefits

Medical benefits pay for all medical expenses related to the work injury, while wage benefits are only a portion of the worker’s regular pay. The percentage varies by state — generally from two-thirds to 75 percent of the worker’s average weekly wage.

The amount of benefits also depends on the extent of the worker’s injuries, as determined by a medical professional. Doctors base their evaluation on a physical examination, medical records, and job requirements.

Disability categories include the following options:

• Temporary total disability (TTD)
• Temporary partial disability (TPD)
• Permanent total disability (PTD)
• Permanent partial disability (PPD)

Workers’ comp generally stops when the injured employee can return to work or reaches a point of maximum medical improvement (MMI) — the point where injuries don’t improve, even with continuing medical care. Workers’ comp can also end if the insurance provider reaches a settlement with the injured worker.

Coverage Requirements for Small Businesses

Most state workers’ compensation laws require coverage for full-time and part-time employees, seasonal employees, and temporary employees. If you are a sole proprietor or have no other employees, your company may not require workers’ comp policy.

Some types of workers do not fall under workers’ comp coverage. Depending on state law, exemptions may include:

• Agricultural workers
• Domestic employees
• Railroad employees
• Real estate agents
• Taxi drivers

Some states require businesses to purchase workers’ comp policies from state funds. States with workers’ compensation funds include North Dakota, Ohio, Washington, and Wyoming. Most states allow business owners to get coverage from state agencies or private insurance providers.

The cost of insurance premiums can vary greatly depending on the individual employer. Factors that can determine the insurance costs include:

• Type of work (employee class code)
• Number of employees
• Insurance carrier
• State laws
• Business needs
• Claims history

Your workers’ compensation costs can increase after a single injury claim. The number of workers’ comp claims for your company directly impacts your premiums. Small businesses can reduce their workers’ comp costs by resolving claims quickly, implementing strong safety measures, and using a return-to-work program.

To find out about the state law requirements for workers’ compensation coverage requirements, check with your state workers’ comp commission or talk to an employment law attorney.

Penalties for Failing to Carry Workers’ Comp

Businesses can face fines and possible criminal penalties for not having workers’ compensation.

States can force employers to pay the worker’s medical bills and increase wage loss benefits. Some states can shut down business operations until the company complies with state regulations.

Covered Work-Related Injuries

Employers must cover on-the-job accidents or work-related occupational injuries. An injury is work-related if an event or exposure in the work environment caused or contributed to the injury or illness. Workers’ comp claims include work-related events that significantly aggravate pre-existing injuries.

Type of work-related injuries include:

• Slip and fall accidents
• Traffic accidents
• Construction accidents
• Repetitive stress injuries (carpal tunnel or tendonitis)
• Toxic exposure (asbestos or benzene exposure)
• Post-traumatic stress disorder (PTSD)

Employers don’t have to cover all injuries that happen in the workplace. For example, injuries involving an employee under the influence of drugs or alcohol are generally excluded from workers’ comp.

Handling Workers’ Compensation Claims

Workers’ comp cases start with the injured employee reporting their work-related injury to the employer. Most states have a deadline for reporting workplace injuries. Once reported, the employee and employer fill out workers’ comp paperwork. Gather any evidence of the accident and medical injuries and get witness statements.

The employer then reports the accident to their workers’ compensation insurance provider and the state workers’ compensation board. The insurance company approves or denies the claim or requests more information. For some injuries, the injured worker and insurance company negotiate a settlement to resolve the claim.

Be careful what you say or do after a workplace injury. Some employers are tempted to deny the claim because of the worker’s fault. Employers may also want to fire an employee for taking workers’ comp if they don’t think the injuries are that serious.

However, workers can file a complaint with the state workers’ compensation board. Handling a complaint can take time and money in legal fees. If you wrongfully terminate a worker for filing a valid workers’ comp claim, they can sue you for unlawful retaliation. Reporting workplace safety issues or filing a workers’ comp claim are protected activities. Employers cannot wrongfully terminate a worker for filing for workers’ comp.

State Workers’ Comp Regulations

Business owners must generally maintain records of any accidents and workplace injuries. You must provide employees with information about workers comp rights and post any required notices. Make sure employees can get access to medical attention after an accident.

Each state has different laws for eligibility, benefits, and employer requirements. If your company operates in multiple states, you will deal with separate workers’ comp regulations. For legal help complying with workers’ comp regulations, consult a local employment law attorney who understands the workers’ comp laws in your state.

Investigating Workers’ Comp Claims

Employers or the insurance company may suspect a worker’s injury claims are not valid. Workers who file false workers’ comp claims can have their benefits denied or face criminal charges. Depending on state law, workers’ comp fraud is a misdemeanor or felony, with fines and possible jail time.

Generally, the insurance company investigates suspicious workers’ comp claims. As the employer, you can also notify the insurance company if there are red flags related to the workplace injury filing. Possible red flags for workers’ comp fraud include:

• Inconsistent explanation of the accident
• Lack of witnesses or other evidence
• The type of injury is inconsistent with the type of accident
• The employee had a recent demotion, workplace conflict, or was facing disciplinary action
• The injury happened immediately after the worker returned from vacation
• Multiple prior claims with other employers

Workers’ comp business insurance companies use surveillance to investigate suspicious claims. They may look for signs the worker is not injured, like doing heavy lifting or participating in sports while reportedly suffering a disabling injury. Insurance adjusters increasingly use social media accounts to find evidence of inconsistencies. Insurance companies can also contact law enforcement if there is evidence of criminal fraud.

Generally, it is better for the insurance company to handle any investigations. If you deny a claim based on vague suspicions and the claim is valid, the injured worker can file a complaint with the state workers’ comp board.

Legal Claims by Injured Employees

When the insurance company denies a workers’ comp claim, the injured worker can request reconsideration or file an appeal. If the employee files an appeal, your local workers’ comp board may require additional information or testimony. The worker may file a civil lawsuit if the workers’ comp commission denies the appeal.

If you get notice of a workers’ compensation lawsuit, talk to your employment lawyer and insurance provider about how to handle the claim.

An employment lawyer who represents small businesses can review your workers’ comp insurance policy to make sure you comply with state laws. Your attorney can explain the workers’ comp claim process to help you handle any workplace injuries. If an employee files a lawsuit for wrongful termination or denies workers comp, contact a small business employment law attorney for legal advice.