Moore: The Workers' Comp Requirement Trap

Monday, February 6, 2023 | 0

I promised that I would cover the question, "How many employees can my company hire without having to buy a workers' comp policy?" The first part of the answer is to not place the business in a workers' comp requirement trap. Let us cover how to avoid the very expensive problem.

James Moore

The National Federation of Independent Businesses (NFIB) has a listing that should help. Check it here. The slider at the top right of the chart page provides quick access to any state.

A very quick review showed that Mississippi requires workers' comp coverage with five or more employees. The Magnolia State seems to allow the most employees without workers' comp coverage in the nation.

Each state listed on the NFIB page has many exceptions. Many states require coverage if there are ANY employees. Please read each state that you are looking to entrepreneur a startup. They do vary somewhat.

Astounding Census Bureau numbers

Many new businesses have been started post-pandemic. The U.S. Census Bureau tallied 412,740 business applications on average per month from Jan. 1, 2020, to Dec. 31, 2022. The highest month was July 2020 with 552,214 new business formations (wow!).

The trap that I mentioned is if your company has more than the state minimum of employees to carry workers' comp coverage. I receive at least two calls/emails or more per month with this situation:

• Very small business.
• Accident has occurred.
• No policy in place.
• Exclusive remedy protections may not be in place.
• Has more than the minimum number of employees that requires coverage, usually with a claim filed with the state, often by an employee’s attorney.
• State’s comp commission has sent the business notice of no coverage.
• Heavy fine letters from the commission are pending.
• Often subcontractors with ladder of insurance.
• Paying the claim out-of-pocket can ruin the small business.

If you are a very small business with low-risk employees, for instance, a carpal tunnel claim can often total $150,000 or more. Use this article to aid your business in finding coverage. You can avoid the workers' comp requirement trap.

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.