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Guest post by: Barbara Weltman Become an Author

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Workers' compensation covers an employee's medical costs and some lost wages if he or she is injured on the job. As an employer, you usually have to carry this coverage as protection for your workforce. Learn how to maximize your protection while minimizing your costs for workers' compensation.

Maximize your protection

Be sure to carry the type of workers' compensation that will provide you with the protection you need. Step one is to understand how workers' compensation coverage operates. It's different from traditional insurance coverage because there's no dollar limit. Once you have the coverage, the carrier assumes the liability, regardless of what that might cost. However, the insurer doesn't actually pay for the claim; you do with advances from the carrier that you make up through changes in your premiums.

Here are some other steps to maximize your protection:

Shop wisely for coverage. In most states you have to take private insurance coverage. Five states (North Dakota, Ohio, Washington, West Virginia, and Wyoming) require that employers buy coverage through a state-operated pool. A handful of states (Arizona, California, Colorado, Idaho, Maryland, Michigan, Minnesota, Montana, New York, Oklahoma, Oregon, Pennsylvania, and Utah) offer state-operated funds but do not mandate coverage through them. Employers who have a choice can compare costs between private insurance and state pools in these states.

Cover yourself? As an owner, you may or may not be required to have coverage for yourself. Sole proprietors, partners, and LLC members are not required to have coverage; they are self-employed. They may be able to obtain coverage if they want it.

If you are incorporated but have no other employees, can you opt not to have a policy that covers just you? Rules vary by state; some allow owners to effectively opt out. However, this may not be the best financial decision to make. Discuss your situation with a knowledgeable insurance agent.

Check on contractors' coverage. If you engage any outsider to do work for your company, such as paint your office, make sure that the contractor has his or her own coverage. If the contractor is injured on your premises and does not have coverage, a claim can be made against you (even if you're someone who is not required to have coverage, such as a sole proprietor).

Minimize costs

Your premiums are based on the size of your payroll and your previous claims. Cutting payroll just to reduce premiums probably isn't wise, but you can work tominimize employee claims to keep costs down.

Safe workplace. The safer your workplace, the less likely it is that employees will be injured on the job. You can work with your insurer as well as OSHA to detect problems and make things safer.

Be sure workers know that they are covered by workers' comp and that they understand the procedures for reporting incidents.

Hire right. If you are hiring someone to fill a position that requires certain skills, make sure that the new employee is up to it. Also, in the course of a background check on a prospective employee, be sure to include information about any prior workers' compensation claims to avoid a claim-in-waiting.

Take swift action. If an employee has an on-the-job accident, get the employee medical treatment immediately, even if the injury is minor. Also, commence an investigation right away to get the facts straight.

Report the incident to your insurance agent immediately.

Detect fraud. The National Insurance Crime Bureau has reported that workers' compensation fraud costs businesses of all sizes about $7.2 billion annually, or 20% of all workers' compensation payments. Claimant fraud rose 23% from the first quarter of 2009 to the first quarter of 2010. What can you do to detect fraud and avoid claims?

• Make sure employees know that you have a zero tolerance for fraud and that workers' compensation fraud is a crime.
• Look for warning signs of fraud (e.g., there are no witnesses to an accident, the worker declines medical treatment, the worker is uncooperative).
• Have your insurer investigate any suspicious claims.

Resources

• Find a great overview of workers' compensation from Insure U for Small Business.
• See how a claim can impact the sales you'll need to generate to cover your costs using an online calculator.

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