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Insuring for the Future for Small Businesses Part 2: What Insurance Do I Need When I Have Employees?

By August 20, 2014April 3rd, 2015Insurance, Startups

Businesses with employees must take into consideration several insurance options. Businesses must meet certain state requirements, including carrying workers compensation insurance and paying unemployment insurance tax. Businesses can also leverage certain insurance as an employee benefit—most typically health insurance and disability insurance. There are also insurance policies that protect against employment-related claims.

Workers’ Compensation Insurance
Businesses with employees must carry Workers’ Compensation Insurance. This coverage protects a business owner from claims by employees who are injured in the course of their employment or who develop an occupational disease as a result of their work activities. The insurance pays for the employee’s medical care, rehabilitation costs, and lost wages. Qualifying employees who are unable to work due to an industrial injury or occupational disease may be eligible for partial wage replacement benefits. Workers’ Compensation Insurance is typically available through a commercial carrier, on a self-insured basis, or through a state program. The benefit of carrying Workers’ Compensation Insurance is that employers are generally protected from paying out-of-pocket for employee damages when a work-related injury or illness occurs, and the employee’s recourse is limited to benefits under the policy.

In Washington, employers must purchase coverage through the Washington Department of Labor & Industries, which provides no-fault industrial insurance coverage for most employers and workers and pays for claims out of an insurance pool—the Washington State Fund. In Oregon, employers can purchase a policy from an authorized insurer, an assigned risk plan, or through certification as a self-insured employer.

Failure to acquire this insurance puts an employer at risk of employee claims, but has additional consequences. An employer found out of compliance with state requirements may face civil penalties in addition to paying injury-related costs.

Unemployment Insurance Tax
A business with employees is also required to pay unemployment insurance taxes. This is generally part of federal and state payroll taxes. This funds state workforce agencies and costs of extended unemployment. Although it funds an insurance policy, employers pay for the benefit via a tax.

Insurance as an Employee Benefit
Employers often offer group health plans and disability insurance as part of the employment package. As a small business owner, these forms of insurance may attract key talent. The options for health insurance are copious, and have undergone significant changes under the Affordable Care Act and will not be discussed here. Disability insurance insures an employee’s income such that the employee will continue to receive income under sick leave, short-term disability benefits, and long-term disability benefits if he or she becomes unable to perform the core functions of his or her work.

Employment Practices Insurance
Employees may allege claims for sexual harassment, wrongful termination, failure to employ or promote, or discrimination. An employer can insure against these claims by procuring Employment Practices Liability Insurance. Coverage under the policy includes payment of claims and the legal costs associated with defending a lawsuit.