What is NOT Covered by Workers Comp?

September 2018
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Your business needs workers’ comp.

Not only does it protect you from having to foot the bill when an employee gets hurt on the job, it also keeps you compliant with state laws that require the policy.

While it’s an important protection for your business, workers’ comp doesn’t cover everything.

Be sure you have a full understanding of what workers’ comp does and does not cover, so that if an injury occurs in your workplace your aren’t stuck paying the costs on your own.

What’s NOT Covered by Workers Comp

Workers’ compensation insurance is designed to cover employee injuries and illness from the job. But here’s what it isn’t designed to cover:

Customer Accidents or Injuries

If someone who works for you is hurt on the job, workers’ comp has you covered. But what about an accident that involves someone who isn’t your employee?

When there is an accident in the workplace where a third-party – who is not in your employ – suffers damages or injury, your workers’ comp policy is not going to cover them.

For this kind of third-party accident, it is necessary to have a general liability policy in place to avoid being stuck with the medical and legal fees that your business may incur following a workplace accident.

General liability insurance is meant to cover third-party property damage or injury, paying for lawsuits and/ or medical expenses for third-party injuries occurring on your business premises.

General liability helps cover the costs for:

  • Medical bills
  • Work time missed
  • Lawyer’s fees
  • Evidence expenses
  • Judgments
  • Court fees
  • Settlements

Workers’ comp will have you covered for employee injuries but not for anyone who isn’t on your payroll.

Independent Contractors

Just because they are working with you doesn’t mean they work for you.

Using independent contractors for your business can definitely save you money. You typically won’t have to provide them benefits such as sick pay, vacation, and health insurance or pay social security taxes.

But if they are injured while performing their duties at your worksite, your workers’ comp insurance won’t have them covered.

While it may be tempting to misclassify a full-time employee as a subcontractor in order to avoid paying out for all of the aforementioned benefits, it is a dangerous game to play.

Misclassifying an employee as a subcontractor could result in major fines and penalties.

In order to avoid these repercussions, be sure you are classifying employees properly. Look for these signs that your subcontractor is actually an employee:

  • Their work must be done exactly per your instructions and you oversee their progress.
  • They need your tools, equipment, and training to get the job done.
  • They don’t set their working hours and days – you do.
  • They have no additional work outside of your projects.
  • They have been working with you for years which isn’t going to change anytime soon.
  • You provide them an hourly pay.
  • The work they perform is integral to your business’ success.

If the above description doesn’t fit the person working for you, then it’s likely you really are working with a subcontractor. In that case, they will need to have their own insurance in order to be covered if any mishaps that befall them while working at your job site.

When it comes to your subcontractors’ insurance requirements the International Risk Management Institute (IRMI) recommends:

  1. All trade contractors/ subcontractors should provide certificates of insurance before beginning any work.
  2. All trade and subcontractors should maintain the same levels of coverage in the same amounts.

What Workers’ Comp Does Cover

Workers’ comp helps compensate employees for injuries and illnesses suffered during work, covering basic expenses such as:

  • Medical costs
  • Temporary disability
  • Permanent disability
  • Supplemental job displacement benefits
  • Return-to-work supplements
  • Death benefits

In many states, all employers are required to carry workers’ comp coverage and must provide proof of valid, current workers’ compensation in order to obtain or renew licenses.

What if you don’t have any employees?

Most businesses don’t need workers’ comp coverage if they have no employees, with the exception of roofers who must carry workers’ comp insurance if they want to obtain a C-39 roofing license.

While workers’ comp may have you covered if an employee is injured on the job, it’s important to know who isn’t covered under your policy and how you can protect your businesses from losses.

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