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Worker's Comp Coverage for Startup Owners

I understand most owners opt out of Worker's comp coverage for themselves because, they won't sue themselves if there is an incident. But I have also been told that in the rare case there is an issue in the workplace, if you have opted out, your health care provider won't cover you should there be injuries. Any advice?

9 Replies

Sarosh Kumana
0
1
Sarosh Kumana Advisor
CEO, Junglee


the answer is always, "it depends".

workers comp is full of gotcha technicalities and complications, designed to increase the need for lawyers and fixers and entrap the unwary.

both the regs and their interpretation (eg exceptions to exceptions) change frequently.

use a good specialist workers comp / labor lawyer.
Jim Scott
0
1
Jim Scott Advisor
CFO * Financial Growth Accelerator * Virtual Company Architect
I never advise anyone to opt out of WC coverage, it is very cheap protection.
Josh Kirschner
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0
Josh Kirschner Entrepreneur • Advisor
Founder & CEO at Techlicious
Worker's comp and health care policies vary by State. You should consult an attorney to understand what the rules are for your area. Some injuries may also be covered by your company's GL insurance. And you can always call your own health insurance company to go through your specific coverage and restrictions.
Dat Nguyen
3
0
Dat Nguyen Entrepreneur
Creative Director
I learned this the hard way. Was hit by the Workers Comp board with huge penalties that would have taken my business under and then some. These penalties were not proportional/representative of my companies actual numbers, they were just the max they could hit me for in penalties. Their thinking is to get my attention and they certainly did.

For that business, I was the only employee and had even talked to a WC insurance provider who gave me the same rationale "You wouldn't sue yourself so why would you need coverage?". All my employees were subcontractors with clear agreements regarding their own coverage, taxes, etc.

That didn't stop the board from requiring me to prove my case with agreements, taxes, etc. going back to 9 years. I had to get a lawyer to help me clear the issue. Ultimately, it was just educating the board about my business and situation, but that took over a year of back and forth. Good news is that all penalties were rescinded. Bad news is I invested lots of time, money, and stress in resolving the issue.

Lessons learned:
1) Get the WC insurance. As Jim Scott said above, it's a very cheap protection and will avoid complications/confusion with the WC board. Do it before you actually have claims against you, as then it will get messier.

2) Have a good lawyer. I have a great one who specializes in WC if anyone needs help.

3) Keep good records. I did, thankfully.

Good luck!



Debbie Rosen
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Debbie Rosen Entrepreneur
Founder, Parent Advocate and Head of Business Operations at The StudyPro
Wow. That is hugely helpful!!! Debbie
Andrew L. Jiranek
0
0
Managing Attorney at Jiranek & Company, P.A.
Mr. Nguyen's story is a cautionary tale. Sometimes the WC board will not accept your characterization of a contractor as a non-employee. They sometimes argue that the contractor is a "statutory" employee who should have been provided worker's comp coverage.
Sarosh Kumana
0
0
Sarosh Kumana Advisor
CEO, Junglee
It is useful to understand the dynamics at the WC dept in CA.
When employment goes down, WC claims go up, including spikes in permanent disability.
On a regular (annual) basis, coverage is expanded, rarely decreased.
Thus there is a constantly increasing demand for funds to pay for the various services covered by WC, more so when the economy is doing well.
When the economy tanks, there is a simultaneous increase in demand for funds at the same time as there is a reduction in supply of funds due to decreased employment.
This creates pressure on WC auditors to find more money to refill the coffers.
If you look for patterns and predictability in audits and hefty fines and penalties, you will find the correlation.
Its not the way its supposed to run, but the WC dept is a bureaucracy like all government departments, and subject to budgetary needs.
David Mair
0
0
David Mair Entrepreneur
Destination Medical Care Thought Leader/Entrepreneur/Speaker
Debbie, your profile says you are in the DC area, which means you have a couple possible WC venues, depending on where your business is actually located. In DC and MD, if you have one or more employees, you must purchase WC insurance for him/her/them. If you are in VA, you must purchase WC insurance if you have three or more employees; you can purchase voluntarily if you have fewer. Owners may exempt themselves, and most do.

You mentioned suing the company or yourself. That's actually not a part of the WC system. It is incident, not negligence, based, so the only thing that matters is that there is a work-related illness or injury. No legal action is required.

As a sole proprietor or owner that chooses not to be covered by WC, it is wise to look now to see what your particular health insurance policy covers. Most do not cover injuries or illnesses covered by Workers' Compensation Insurance. A smaller number do not cover work-related injuries or illness, regardless of whether WC insurance is available. It's not too hard to determine which is the case in someone's policy.

Michael X. Heiligenstein
0
1
Marketing Manager
As others have mentioned, there are a number of factors at play here. You're not going to sue yourself, no, but depending on your state (and the specific circumstances) you may be violating state law by not providing it - even to yourself.

The good news is that workers's comp is typically pretty cheap, as many here have stated. Worker's comp costs vary widely by industry and are significantly lower in low safety risk industries - eg most startups - than in high safety risk industries such as construction. You can see a full pricing table here:http://fitsmallbusiness.com/workers-compensation-insurance

So if you're a startup focused on an industry with a high safety risk, your costs might be higher (but very necessary!). That might come into play ifyou want to create an app that connects people with home maintenance help, for example. Most importantly though, look at your state's laws and exceptions when it comes to worker's comp, especially when it comes to whether or not you need it to cover yourself. It's a legal requirement, so it's not just 'someone suing you' that you have to worry about. When in doubt, get Workers Comp.
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