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If you’ve got W2 employees, there’s a good chance you’ve encountered the complicated and confusing world of workers’ comp insurance. You know that some states’ laws require it, while others don’t. And you may also have a potential client or two that wants to see proof of coverage before you can get the work. Many small businesses are surprised by the amount of maintenance involved in sustaining workers’ comp coverage. Annual renewals, estimating payroll, and adding employees to your policies are all potential minefields where one misstep can have disastrous consequences. Here are the top five “gotchas” to watch out for when it comes to workers’ comp insurance: 1. Know your state’s penalties. Certain states levy heavy fines if your employees work there but you don’t keep them covered by workers’ comp insurance. For example, in New York, you can be fined up to $50,000 for just one uncovered employee. If your company is based next door in New Jersey, you may think you’re exempt from these penalties. But if one of your traveling employees is working in New York, you’re still subject to the fine, so you’d better be sure that your New York-based employee is insured. New York isn’t the only state that has such stiff penalties, so be sure you know the laws in every state where you do business. 2. Allocate premium to the states in which you have employees. Even if your employee only works a few months out of the year in another state and the rest of the year close to home, you need to be sure that he is covered in both states. Check to be sure that your workman’s comp policy has an all-states endorsement This endorsement ensures that your employees are covered in all states equally, even if you fail to notify the carrier on a timely basis that you have a new employee or business in a new state. 3. Report new employees. When covering your employees with a workers’ comp policy, be sure you separate your payroll by the states in which they work, and immediately report any new hires to your insurer. For example, if your business is located in California and you hire an employee to work in Oregon, but you don’t add that employee and state to your workers’ compensation policy, he may be covered for any injury claims temporarily under an all-states endorsement – but he won’t be covered the next time your policy is renewed. 4. Estimate carefully. Workers’ comp policies are based on estimates of payroll. Even though you don’t have a crystal ball, take the time to develop a careful estimate of your payroll for the coming 12 months, in your home state as well as any states where you think you will be doing business. At the end of the policy term, your insurer will send you an audit statement and ask for your state-filed payroll documents. They’ll compare your actual divided payroll to your estimate, and you could receive either a refund or a bill for additional premium. 5. Always respond to your insurer’s audit requests. If you don’t, the insurance company will assume your company has grown and will automatically apply an estimated increase in payroll that may or may not reflect reality. Of course, that means higher workers’ comp rates for you. Jim Cochran is the owner of TechInsurance, an IT Business Insurance company serving independent contractors and small businesses. With over a decade of experience in the insurance industry, Jim understands the intricacies of workers comp insurance and can help you get the right coverage.
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Avoid Workers Comp Frustrations Prepare for the Worst
