Workers comp · Startups

Worker's Comp Coverage for Startup Owners

Debbie Rosen Founder, Parent Advocate and Head of Business Operations at The StudyPro

June 28th, 2016

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?

Dat Nguyen Creative Director

June 29th, 2016

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 Good news is that all penalties were rescinded.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!

Josh Kirschner Founder & CEO at Techlicious

June 28th, 2016

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. 

Debbie Rosen Founder, Parent Advocate and Head of Business Operations at The StudyPro

June 29th, 2016

Wow. That is hugely helpful!!! Debbie

Andrew Jiranek Managing Attorney at Jiranek, P.A.

June 29th, 2016

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 Strategic Advisor / Board Director at Various

June 29th, 2016

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 Destination Medical Care Thought Leader/Entrepreneur/Speaker

June 30th, 2016

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.