Workers’ Compensation Insurance: A “Trap” for Unwary Business Owners
Workers’ compensation insurance covers an injured employee’s healthcare costs and income losses from injuries that occur while working. This can relate to pre-existing conditions that are aggravated, diseases caused by exposure on the job, injuries, and even stress and strains of a psychological or physical nature.
I’m often asked by small business owners whether they need workers’ compensation insurance. There are penalties for businesses that neglect to carry insurance, in some cases rising to the level of a misdemeanor for business owners or felonies for willful neglect.
In North Carolina, with some exceptions, any business that employs three or more employees, including those operating as corporations, sole proprietorships, limited liability companies and partnerships, must obtain workers’ compensation insurance or qualify as self-insured employers for purposes of paying workers’ compensation benefits to their employees. Note that while corporate officers may elect to be excluded from coverage, they are still counted in determining whether a business has three or more employees. (This last point often trips up even the most diligent of small employers.) In New York, even if your business has just one employee, you are generally required to carry workers’ compensation insurance. In both North Carolina and New York, the requirement applies to part-time employees and family members employed by the company.
Business owners should also understand their responsibilities when incidents occur. Accidents happen even in the most careful environments so it makes sense to be prepared to ensure the best outcomes. Work with your risk manager, insurance agents, and/or counsel to make sure that you have proper accident procedures in place and mitigate your risk before an accident occurs.