Workers’ compensation insurance for small businesses

Workers’ compensation (or workers’ comp or workman’s comp) helps protect your team and your bottom line. Contact us today for a quote and guidance from Automatic Data Processing Insurance Agency, Inc. (ADPIA®)1, an affiliate of ADP.

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What is workers' compensation insurance?

Workers’ compensation insurance provides financial support — medical expenses, lost wages, and rehabilitation costs — to employees who get injured or sick on the job. It also pays benefits to families of employees who suffer a work-related death.

Employers benefit from purchasing workers’ compensation insurance because it helps protect their business against potential lawsuits related to workplace injuries. Moreover, most states require businesses to carry it.

Key facts about workers' compensation

Why you need workers’ compensation insurance

The answer is simple:

  • It's the law: Nearly all states require companies to have workers' compensation insurance, depending on the size of the business.
  • There are strict consequences: Non-compliant companies may face hefty penalties and stop-work orders.
  • No-fault protection: Most employees are eligible for workers' compensation, even if their injuries resulted from their own negligence.
  • On-the-job coverage: Workers' compensation is unique and essential – health insurance generally won't cover job-related injuries or illnesses.

Who is required to carry workers’ compensation insurance?

With a few exceptions, most states require businesses to carry workers’ compensation coverage for their employees and typically enforce penalties for those who don’t have it. Even if you’re a small business, you may have to purchase insurance for workers’ compensation. It’s especially important in the following high-risk industries:

  • Healthcare
  • Manufacturing
  • Restaurants
  • Retailers
  • Contractors

How does workers' compensation insurance work?

Workers' compensation insurance helps employees with job-related injuries or illnesses smoothly recover and return to work. Having coverage also promotes workplace safety.

What is covered?

  • Medical treatment and care
  • A substantial part of lost wages during recovery
  • Disability benefits
  • Funeral expenses in case of a work-related death
  • Legal costs from work-related injury or illness lawsuits

What is not covered?

Workers’ comp benefits aren’t available to employees for an injury or illness incurred outside of work, even during a commute to or from work. Also, benefits may not be available for employees who hurt themselves intentionally while on the job or experience a work-related accident while intoxicated.

How workers’ compensation claims work

To help ensure swift access to care and sufficient documentation for a claim, employees must immediately seek medical attention after a job-related injury. Once the appropriate paperwork is completed, employers must submit the claim, including supporting documents. After the claim is filed and approved, compensation is promptly paid to employees, allowing them to focus on recovery. They are allowed to return to work at their own pace, ensuring a smooth transition back into their roles with minimal disruption.

When you have workers’ compensation insurance coverage through ADPIA, licensed agents can work with you to help you submit your claim to your carrier.

How is the cost of workers’ compensation insurance determined?

Workers’ comp insurance rates are based on a variety of factors:

  • Payroll amount: A higher payroll typically results in greater insurance costs.
  • Industry type: Certain industries involve high risks, impacting the costs.
  • Job classification: National Council on Compensation Insurance (NCCI) codes determine risk levels associated with specific job types.
  • Claims history: A history of employee claims can lead to higher premiums.
  • State regulations: While rates for a worker class can vary from state to state, jobs with a higher risk of injury generally increase your insurance cost.

To navigate these complexities, consider consulting a licensed ADPIA agent for a workers’ compensation quote and effective claims and risk management strategies to help control costs.

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Guidance from licensed workers’ compensation insurance professionals

Working with ADPIA’s licensed agents, you'll receive knowledgeable and supportive guidance — from showing you how to get workers’ comp insurance coverage to providing price options through our carrier partners and alerting you to requirements and regulatory changes.

With more than 200,000 businesses trusting ADPIA with their insurance needs, you can make smart choices with confidence, knowing we have the knowledge, tools and resources to help meet your unique needs.

Improve cash flow and streamline payments with Pay-by-Pay®

What would you do if you had better cash flow to invest in your business?

With ADPIA as your workers’ compensation agent and ADP’s payroll and Pay-by-Pay Premium Payment Program2, you get a simple, efficient way to pay your premium.

  • No upfront premium deposit is required3, freeing up funds that you can invest in your business
  • Premium payments are based on actual, not estimated, payroll data and carrier rates to minimize over or underpayments at your year-end audit4
  • Payments are spread over your company's payroll cycle, so you know what to expect and when

Compare ADP's Pay-by-Pay to traditional premium payment programs

Pay-by-Pay Premium Payment Program

  • No premium deposit required
  • Premium based on actual payroll and carrier rates
  • Payments spread out over your company's payroll cycle
  • Reduced risk of over or underpayment at year-end audit
  • Eliminates writing checks and assures accurate, on-time payments

Without Pay-by-Pay

  • A 25-100% premium deposit may be required
  • Premium based on estimated annual payroll
  • Limited payment terms (e.g., monthly, quarterly, semi-annual)
  • Greater risk of additional premium due at year-end audit
  • Need to hand write checks and send via mail, risking late payment or cancellation

See what you can do with Pay-by-Pay

Pay-by-Pay may help you eliminate upfront deposits, improve cash flow by making accurate and automated payments and simplify your audits – directly impacting your bottom line.

Boost cash flow 

Save time and enjoy more accurate premium calculations by integrating your policy through ADPIA with ADP payroll.

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Make accurate premium payments

Pay what you owe and keep the rest of your cash where it belongs, invested in your business.

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Access your policy anytime

Access your policy details online, 24 hours a day – 7 days a week.

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Clients agree – we make workers’ compensation easy

Internal survey of 697 ADPIA clients in 2022 that use ADP’s Pay-by-Pay® Premium Payment Program to calculate and process their workers’ compensation premiums.

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See what others say about working with ADPIA

Get workers’ comp insurance and payroll all in one

Streamlining your workers’ compensation and payroll is as easy as partnering with ADPIA. Whether you need competitive proposals from multiple carriers or advice from licensed agents, you can easily handle your insurance online, on your terms. That's because Pay-by-Pay integrates with ADP payroll, which means you can manage your workers’ compensation insurance policy directly from your payroll system.

Catch Workers' Compensation Errors Before They Happen

ADPIA's Insurance Inspector tool5 leverages AI technology to help you catch errors and other compliance risks that could cost you time and money.

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Workers’ compensation FAQs*

How do I get workers’ compensation insurance?

Automatic Data Processing Insurance Agency, Inc. (ADPIA), an ADP affiliate, offers workers’ comp insurance for small business, as well as for midsize and large companies. ADPIA can help you find workers' compensation coverage that meets your state requirements while protecting your company and employees if there is an injury at work. Contact us for help securing a policy with one of our top-rated carrier partners.

What are the benefits of workers' compensation insurance for employers?

Small business workers’ compensation insurance is a strategic investment that helps protect business owners and their employees in the event of a work-related incident. If your insurance is compliant with state law, an employee who receives workers’ comp benefits typically can't sue you for their injuries or lost wages.

In exceptional cases where a lawsuit proceeds, a workers’ comp policy with liability coverage can help pay your court costs and legal fees. Lawsuits filed by both employees and third parties adversely affected by an injury to a worker are generally covered.

Additional benefits offered by some insurers include fraud prevention support, workplace safety tools and managed care services to help injured workers get back to work faster. You may also gain access to benefits administration tools and a pay-as-you-go program for more accurate premium payments.

What is the difference between workers’ compensation and health insurance?

The key differences between workers' compensation and health insurance are:

  • Workers' compensation covers workplace-related injuries and illnesses;
  • Health insurance generally covers medical expenses and preventative care not related to work.

When do I need to buy workers’ compensation insurance?

In most states, workers' compensation insurance is required as soon as a business hires its first employee. States typically enforce penalties for employers who do not have workers' compensation insurance. Contact us for help determining your state's requirements.

How do workers’ comp requirements differ by state?

Nearly all states require employers to carry workers’ compensation insurance as soon as they hire an employee, though each jurisdiction is unique. In some states, employers that don’t provide the required coverage face severe penalties, including fines, jail time or both. They may also be responsible for covering their injured employees’ medical bills.

Requirements further differ for self-employed workers, single-member LLCs and independent contractors. Unless your state says 1099 contractors aren’t required to have coverage, it’s a good idea to include them in your policy.

In states where coverage is optional, small businesses can still get coverage from an insurance company or state-funded account to help protect the organization and its employees. However, in “monopolistic states” (North Dakota, Ohio, Washington and Wyoming), employers must purchase coverage from their state’s workers’ compensation insurance fund. An ADPIA-licensed agent can help you learn more about the laws in your state.

When do I need to buy workers’ compensation insurance?

In most states, workers' compensation insurance is required for companies with one or more employees. States typically enforce penalties for employers who do not have workers' compensation insurance. Contact us for help determining your state's requirements.

Who is covered by workers’ compensation insurance?

Workers' compensation insurance coverage typically includes full-time and part-time employees (W-2 workers), but the specific requirements can vary by state. Independent contractors and 1099 workers may also need coverage depending on contractual requirements or state laws. The necessity for coverage can depend on factors like the size of the business, the type of work being performed, and state-specific legislation. Volunteers are typically excluded from coverage.

Who is exempt from workers’ compensation insurance?

Each state has specific exemptions for those who don't need to carry workers' compensation insurance. Still, common exemptions include agricultural employees, domestic workers, real estate employees, and coaches for children's teams. ADPIA can work with you to check your state's workers' comp requirements, as they vary widely and may include more specific exemptions or stipulations.

How much does workers’ compensation insurance cost?

Workers' compensation insurance pricing is based on: carrier defined rates, your payroll, the number and job classifications of the employees, classification of your business and past loss experience. As the employer, you are responsible to pay for the cost of workers' compensation premiums.

What does workers’ compensation insurance do?

Workers' compensation insurance generally pays for the rehabilitation, recovery or medical bills of employees' work-related injuries, as well as lost time due to a work-related injury. Workers' compensation insurance is not a substitute for health or medical insurance — employees are only covered for on-the-job injuries.

What injuries are typically covered by workers’ compensation insurance?

With workers’ compensation insurance, employees are covered if they get hurt or sick on the workplace premises or elsewhere while they are acting in the course and scope of employment. The injury or illness does not have to result from a single incident. For example, work-related repetitive stress injuries are generally covered by workers’ comp.

Additionally, workers’ compensation insurance covers injuries employees may sustain due to workplace violence, terrorist attacks and natural disasters that occur while they are working.

Accidents driving to and from work are not covered. Also, benefits may not be available for employees who hurt themselves on purpose while on the job or suffer an accident while intoxicated at work.

What treatment can injured or sick workers receive with workers’ compensation?

Workers’ compensation insurance provides workers who are hurt or sickened on the job with all medically necessary and appropriate treatment. However, many states have adopted measures to help control expenditures. They may enforce utilization management guidelines describing which treatment protocols and diagnostic tests are acceptable for specific injuries.

What benefits do injured or sick workers receive from workers’ compensation?

If employees are injured on the job or suffer a work-related illness, workers’ compensation insurance generally covers:

  • Medical treatment and care, such as emergency room visits, necessary surgeries, prescriptions and physical therapy
  • A substantial part of lost wages if they need time off during recovery
  • Disability benefits, which help pay medical bills and replace some of the wages lost if work-related injuries cause temporary or permanent disability
  • Funeral expenses in case of a work-related death

How are workers’ compensation income replacement benefits calculated?

Workers’ comp income replacement benefits (also known as “lost wage” or “indemnity” benefits) are calculated based on an injured or sick worker’s degree of disability. The various levels include temporary total disability, permanent total disability, temporary partial disability and permanent partial disability. (A distinction is made between disability and impairment, with impairment generally defined as a reduction in earnings capacity.)

Once the degree of disability has been determined, injured workers receive a percentage of their average weekly wage (actual or state average) for the previous year. Most states require that benefits be paid for the duration of a worker's disability, but some specify a maximum time period. Also, most states enforce a waiting period before benefits for a temporary disability are distributed, though these vary by state, and there are exceptions.

Does workers’ compensation cover business interruption?

Workers' compensation insurance does not cover business interruption. It is designed specifically to cover employee-related injuries and illnesses that occur due to or in the course of employment. A business owner's policy (BOP) is a separate type of policy that provides coverage for lost income and additional expenses when a business is affected by a covered event.

My partner and I subcontract work to other contractors but have no employees. Do we need workers’ compensation insurance for ourselves?

The answer to this question is complicated and depends on several factors. Contact us and a licensed APDIA agent will be able to help you.

Does workers’ compensation cover my subcontractors?

Workers' compensation insurance generally does not automatically cover subcontractors, though that may vary based on your state. Employers usually need to take additional steps to ensure coverage for subcontractors, which might involve specifying coverage terms in the contract or purchasing separate policies. Work with ADPIA to understand your specific obligations and options regarding subcontractors and workers' compensation insurance.

How am I billed for workers’ compensation if I’m not using ADP’s Pay-by-Pay?

Direct billing is an option for clients that prefer to receive a bill for their workers' compensation premiums that comes directly from their insurance carrier.

What is an additional insured?

Additional insureds are third-party entities that were not originally named on your workers' compensation policy, and cannot be added. This is because your workers' compensation policy is intended to cover your employees only. However, additional insured endorsements can be included in general liability policies.

What changes do I need to notify ADPIA about?

Please notify ADPIA about any modifications made to your business operations, including (but not limited to) changes to:

  • Your authorized contacts
  • Operating locations
  • FEIN
  • Entity and ownership status
  • Employee status

Why am I having an audit, and how can I prepare?

All workers' compensation policies are subject to audit by the carrier as per the terms of your policy. You may be required to participate in an end-of-policy term audit to confirm the accuracy of your premiums and coverage. If so, your carrier will contact you within 30-60 days of your policy expiration to arrange the audit. Rest assured that ADPIA is here to help you through the audit process. Prior to contacting us for assistance, please have the following documents handy:

  • Quarterly reports or 941s
  • Payroll journal/master payroll file
  • Federal tax records
  • State unemployment reports
  • Overtime pay by employee
  • Payments to subcontractors (if a subcontractor provides materials as part of a job, be sure the invoice specifies payment for work and materials separately)
  • Certificates of insurance for each 1099 and/or sub-contractor who maintains their own workers' compensation policy
  • CA clients with dual wage classifications: You may be required to provide timecards

Who handles my audit?

The audit must be completed by an authorized representative of your business. ADPIA can help by providing copies of reports and answering questions related to the audit process, but ADPIA does not perform the audit.

How does a workers' compensation claim affect a small business?

A workers' compensation claim can have a significant impact on a small business, primarily through increased insurance premiums. Insurers assess a business's claims history, payroll figures and industry averages to determine premium rates. When a small business files a claim, it can lead to higher costs, sometimes equal to or even exceeding the amount paid in claims. This situation can be particularly challenging for small businesses, which typically have fewer financial resources to absorb the increases compared to larger companies.

What is the minimum amount of workers' compensation insurance required?

Laws and regulations regarding workers’ compensation vary by state and circumstances. Employers should consult a licensed insurance agent to understand specific coverage requirements.

Does a sole proprietor need to have workers' compensation insurance?

Generally, workers' compensation insurance requirements apply to businesses that have employees. If you are a sole proprietor without employees, you are not typically required to carry workers' compensation insurance. That said, sole proprietors should consider obtaining coverage, especially if they operate in a high-risk industry. Many personal health insurance policies do not cover work-related injuries, leaving sole proprietors vulnerable to significant medical expenses in the event of an accident or injury while working.

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1 Automatic Data Processing Insurance Agency, Inc. (ADPIA) is an affiliate of ADP, Inc. All insurance products will be offered and sold only through Automatic Data Processing Insurance Agency, Inc., its licensed agents or its licensed insurance partners; 1 ADP Blvd., Roseland, NJ 07068. CA license #0D04044. Licensed in 50 states. Certain services may not be available in all states.

2 Must be an ADP Payroll client using RUN Powered by ADP® or ADP’s Workforce Now® and have a workers’ compensation policy brokered by ADPIA. ADP's Pay-by-Pay Premium Payment Program is a payroll enhancement feature of ADP's payroll processing services. Clients must be using ADP's tax filing service to take advantage of Pay-by-Pay. Pay-by-Pay is not available with all carriers. Talk to a licensed ADPIA agent for more details.

3 While premium deposits may be eliminated by most carriers, mandatory state assessment fees may be required in some states.

4 Requires latest version of RUN Powered by ADP and/or Workforce Now

5 Requires latest version of RUN Powered by ADP

* FAQs are general and not intended as tax or legal advice. If you have any questions, contact a tax or legal professional.