Workers' compensation insurance can be a hassle, but it's also an important part of the agreement between employers and their employees. And if you don't cover your employees with workers' comp when you're required to, you're leaving yourself wide open to be sued for personal injury if they suffer harm on the job. But it can be complicated when you're trying to figure out whether or not you are required to have workers' comp, because there's no one-size-fits-all rule. Here are three of the variables that may determine whether or not you need to purchase workers' comp insurance.
1. Number of employees
Sometimes small businesses are exempt from workers' comp requirements. How small is small? Well, in North Carolina you have to get workers' comp as soon as you hire your third employee in most cases, even if none of them are full-time. (As the proprietor, you're not counted as an employee in this scenario.) The basic requirements can change when they intersect with other variables, however, as you'll see below. And you'll have to be very careful to check who the state identifies as employees. Some states may include anyone (including contractors hired temporarily) in their number, making things trickier.
2. Type of business
They type of organization you choose for your business can affect how your workers' comp requirements work. If you're self-employed as a freelancer, you probably won't have to pay workers' comp for yourself because you're likely to arrange your business as a sole proprietorship, which often isn't required to provide insurance until three employees are hired. But if you have a business organized as a corporation, having three or more people in the corporation can mean you need insurance (in North Carolina, for example), and in this scenario everyone counts toward the total (unlike in sole proprietorship). This is one of the reasons why it's so important to choose your business format carefully when you're brainstorming and organizing a startup.
The type of work your business does can also affect your workers' comp requirements. Some dangerous industries may have stricter requirements, whereas if you're in the agriculture business you may not have to count seasonal employees at all. And some businesses such as those in the commercial fishing industry are exempt from workers' comp requirements (although workers in the commercial fishing industry are entitled to compensation under maritime law).
These three factors can have a big impact on whether or not you're under workers' comp requirements. But as you may have noticed, the biggest variable of all is which state you're in. This can get complicated if you have employees who travel to other states. For example, if you have a long-distance moving company, you'll have to check and make sure you're covered under the requirements of every state your employees might be working in. Click here for more info about workers' comp requirements.