An Introduction to Workers’ Comp for Contractors

What is Workers’ Comp?

Workers’ comp is short for workers’ compensation insurance, a type of insurance policy purchased by businesses to cover their employees in the event of a work-related accident, injury, or illness. If a worker sustains an injury during the course of the job duties, their employer can file a claim to receive financial assistance for medical expenses, lost wages, the cost of rehabilitation, and other related expenses.

Why Contractors Need Workers’ Comp Insurance

Workers’ compensation policies protect both business owners and employees. By instating workers’ comp coverage, employers can avoid being held liable in the event of an on-site injury and can ensure that workers in dangerous jobs have financial support to fall back on if needed. 

Many states require all businesses over a certain size to purchase workers’ comp insurance, but states like Texas leave it up to the discretion of the individual business owner. In some states, only companies whose workers are in dangerous professions are required to purchase workers’ comp insurance. Contractors and their subs can expect to be categorized among those dangerous professions. 

Working on a construction site comes with a high level of risk to one’s personal safety. Contractors must invest in workers’ compensation coverage to protect themselves and any employees they may have. However, because construction is a high-risk industry that contractors are a part of, even self-employed contractors with no employees on their payroll can consider purchasing workers’ compensation insurance just for themselves.

The Cost of Workers’ Compensation Coverage

The cost of workers’ compensation insurance varies depending on a variety of factors like what state you work in, your payroll, your employees’ class codes, your EMR, and your insurance provider. Each state sets pure premium rates for workers’ comp based on how dangerous each given trade has historically been for workers in that state, but each insurer creates its own pricing model using those pure premiums as a baseline. The relevant state agency must approve the pricing schedule each insurance provider uses, but this does not eliminate variance. Contractors purchasing workers’ compensation insurance for the first time should shop around and compare rates.

How PEOs Can Make Workers’ Comp More Manageable

Shopping around for an affordable workers’ compensation policy, as well as the continued effort managing workers’ compensation insurance and any associated claims, can be an administrative burden that many contractors and business owners are reluctant to adopt. For this reason, many businesses in the construction industry partner with PEOs to simplify the process of workers’ comp compliance, handle claims management, provide safety/risk mitigation guidance, instruct post-accident drug testing policies, and other related processes.

SPLI is a PEO with 36 years of experience supporting contractors and construction industry professionals in all of their workers’ comp needs. Our unique relationship with our insurance partner allows us to provide workers’ comp insurance programs that have been rated A by AM Best at highly competitive rates, even to high-risk clients. If you’re interested in learning more about how SPLI can help you manage workers’ comp, contact us today.