Simplify Payments for Workers’ Compensation Insurance
As a small business owner, one of your most important assets is your people. So when an employee suffers a work-related injury or illness, you feel it—both emotionally and financially.
One way to protect your business is through workers' compensation insurance. This type of insurance provides coverage for an employee who has suffered an injury or illness from job-related duties. Coverage includes medical and rehabilitation costs and lost wages for employees injured on the job. The insurance premium the employer pays depends on the category of the employee (for example, administrative, delivery person, and so on).
Without adequate workers' compensation insurance, your business is exposed to two types of risk. First, if an employee is injured on the job, the employer may be held personally liable for both the cost of the employee's medical care and for the lost wages while the employee is unable to work. Second, many states impose strict fines and penalties for employers who are cited for not having the required insurance.
The laws regarding workers’ compensation vary by state. Here are some general guidelines:
- According to the Small Business Administration, the law in most states requires some form of workers' compensation insurance. While state practices differ, even the smallest employers may be required to carry this form of insurance.1 To learn more about what is required in your state, check the Office of Workers' Compensation Programs or search for the department of insurance for your particular state.
- Several states have exemptions for smaller firms. However, even the smallest firms may want insurance coverage to protect them from potential risk.2
Payment Methods
You can set up payment for a workers' compensation plan a few different ways. A traditional workers' compensation payment method requires the following actions:
- Employers typically are asked to pay all or part of the year's premium in advance or in quarterly installments (in this case, service fees may also be charged). This can have a negative impact on your cash flow.
- Payment checks need to be written and paid on time to avoid additional charges for late payments or interruptions in coverage.
- At the end of the policy year, the employer may be required to perform a year-end payroll audit. This may involve preparing a report detailing the payroll history of the policy year and possibly an on-site visit from an auditor.
- Depending on the audit results, the employer may then be expected to pay an additional premium for the current policy and prepay a significant portion of the next year's premium.
As an alternative to pre-payment, you may want to consider a “pay-as-you-go” option to improve your cash flow. This service allows you to pay the amount that's due every time you run payroll.
“Pay-As-You-Go” Option for QuickBooks Payroll Subscribers
Visit payroll.intuit.com/workerscomp for details on a “pay-as-you-go” option that works with QuickBooks Payroll and instructions on how to get started.
1 U.S. Small Business Administration, http://www.sba.gov/smallbusinessplanner/manage/getinsurance/SERV_INSURANCEFAQS.html.
2 The National Academy of Social Insurance (NASI) assumes that workers are not covered by workers' compensation if they work for small firms in the fourteen states that exempt small employers from mandatory coverage. Private firms with fewer than three employees are exempt from mandatory coverage in eight states: Arkansas, Colorado, Georgia, Michigan, New Mexico, North Carolina, Virginia, and Wisconsin. Those with fewer than four employees are exempt in two states: Florida and South Carolina. Finally, firms with fewer than five employees are exempt from mandatory coverage in Alabama, Mississippi, Missouri, and Tennessee (U.S. Department of Labor, 2006) Workers' Compensation: Benefits, Coverage and Costs, 2006. National Academy of Social Insurance.