Do I Need Workers’ Compensation Insurance?

Typically, most business owners do not completely understand workers’ compensation and why they should purchase coverage, even if they have only one employee. Workers’ compensation is regulated by each state and in many cases, the employer is mandated to provide coverage regardless of the number of employees. In many states, however, the coverage is not required unless the business has three or more employees.

Workers’ Compensation: Why Bother?


If you operate a business with any number of employees, you, the business owner, are putting your business assets at risk if you do not provide workers’ compensation. If an employee is hurt or becomes ill because of a work-related injury, the employer will be required to pay all medical and lost wages out of the company’s cash flow.  Workers’ compensation insurance provides employers protection from the costs and liability arising from an injured employee.


Workers’ compensation insurance is designed to protect your business and your workers who might suffer a work-related injury or illness. Specific requirements may vary from state to state but the basics of a workers’ compensation policy are the same across the country. The policy is designed to pay for:


  • Medical expenses for the treatment of work-related injuries
  • Helps pay for wage loss resulting from a work-related injury or illness
  • Benefits for the family of an employee who suffers a work-related death
  • A portion of the burial expenses of an employee due to a work-related death


Policy Pricing 

Policy rates are determined by the state and are typically a multiple of the class rate per $100 of payroll. Each industry is assigned a class code, and then the class code is assigned a rate. For example, you own a painting company with two full-time employees that paint houses and pay them $36,000 per year each. The rate would be determined as follows:


$36,000 X 2 = $72,000

$72,000 ÷ 100 = 720

$720 x (the rate) = Premium


The most important thing when pricing the workers’ comp policy is to properly classify each employee. For example, if your company is in the roofing business, which is one of the most expensive rate classes, it’s likely that not every employee is actually doing roofing work. Your office manager would have a much lower rate per $100 as would your outside salesperson.


Officers of the company are typically allowed to exclude themselves from the policy's coverage and their respective payroll is not included when determining the premium. Most states and insurers will require an election form (WC-10) indicating that as an officer of the company, you are electing not to participate in the workers’ compensation program.


As a business owner trying to compete and survive in your industry, it's important to understand that a Worker's Compensation policy not only protects your employees, but it also protects your business from being sued by your employees due to a work-related injury or illness. The state workers’ compensation boards have significant fines and penalties for businesses who do not comply with their respective workers’ compensation rules and regulations.


Yes, workers’ compensation can be expensive but, the expense of penalties, fines, and lawsuits far outweigh the cost of the insurance.

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Patriot Underwriters Blog

Patriot Underwriters, Inc. (PUI) is a national program administrator. We develop innovative solutions that help our clients contain costs and minimize risk through customized insurance products and services.

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