Why Small + Medium-Sized Businesses Need Workers’ Compensation Insurance

Posted on January 24, 2019

Written by David Harvey, Operations Consultant at Spur

Workers’ compensation insurance–it’s a good idea for all small and medium-sized businesses to carry it. Spoiler alert: most states require it by law. Even with one, part-time employee, it’s required. But we’ll get to that shortly.

Let’s start with Otto von Bismarck, Chancellor of Prussia.

In the late 1800s, Europe was undergoing rapid industrialization. Safety was awful, at best. This led to two problems–workers rioted, and employers couldn’t figure out who was liable for injuries. Bismarck established a workers’ accident insurance program that solved both problems. The state set payouts for specific sorts of injuries and lost wages, and companies were protected from liability from workplace accidents.

Simply put, workers’ compensation reimburses workers who are injured on the job. It also keeps employers from getting sued. So good job Otto.

Individual states in the U.S. started adopting similar laws in the early 1900s. By the late ‘40s, the workers’ compensation framework as we know it was in place.

Today, all states have workers’ comp laws, and all are different.

Most require the employer to purchase coverage even with only one employee. However, Texas and a few other states allow businesses with less than five employees to skip this coverage, but that would be a big mistake for employers.

But, margins are thin, particularly at small businesses. Why would an employer want to pay an additional 1-5% (or more) of wages to a workers’ comp insurer? Well, there are a few good reasons:

1.  It’s good for employees. If they’re hurt, the workers’ comp insurer pays for the injury. The insurer restores lost wages if they’re disabled. If they’re permanently injured, the insurer pays a set amount.

2. It’s good for the employer. By purchasing workers’ comp insurance, the employer avoids lawsuits. Also, it’s relieved of the duty of care after a loss, which can be considerable.

One Last Note

The rate for workers’ compensation is related to the employer’s claim history. This means the safer your workplace, the less you pay.

All in all, not a bad solution to a complicated problem.

When a workplace signs up with Spur, their workers’ compensation insurance becomes OUR job. We pay the premiums, manage the losses, and make all appropriate state filings. And because it’s our mission to be the most worker-centric employer on the planet, we can help with workplace safety and back-to-work planning.

David Harvey was in the insurance and reinsurance business for 15 years as a broker, underwriter, and large loss adjuster for, yes–workers’ compensation claims. He left the insurance world in 2001 to manage operations for two successive hedge funds. For the past couple of years, David has been active in the venture capital space. He consults with and raises money for startups and small businesses.