This is why contractors have workers' compensation

Updated Jun 16, 2022
Three workers wearing safety vests inside a job site office trailer
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Do you need to have workers' compensation coverage if you’re in business? Is it necessary if you subcontract the work to others? While your occupational safety record is good, all contractors require some form of workers comp. It doesn’t matter the industry or whether you have one employee or dozens, insurance is crucial.

Work-related accidents occur, but workers comp protects your business against them. Remember, your business is at risk every time there is a workplace injury and that’s why having Workers' Compensation coverage is essential. 

4 good reasons to have workers' compensation insurance

It’s the backbone of your business and there are many reasons to have it. Here are just a few reasons why contractors need workers comp. 

1. workers' compensation covers financial loss 

Workers' compensation insurance essentially covers any and all medical and rehabilitation costs, as well as lost earnings as a result of being unable to work. When an employee receives injury at work, you, as their employer, are liable to cover their financial losses. However, workers comp will cover any potential loss. That’s crucial for your business and your contractors. Remember, one bad lawsuit against your company could lead to bankruptcy and that’s why workers' compensation is a must-have for your workers. 

2. No workers' comp leaves you open to lawsuits

You work hard. You have a good business and are constantly looking to improve workplace safety. However, let's say your business doesn’t have workers' compensation for any employee. Within a matter of minutes of one another there are two work-related accidents; what does that mean for you? Potentially, the employees can sue you be sued because there was no insurance for them on the job site to cover them against such injuries. 

Injured workers want compensation for their injuries and of course, their lost wages. You are going to have to cover those costs. You’re essentially at their mercy because they’ll more than likely file a lawsuit against you or your company. You might think it’s unfair, so put yourself in the employee’s shoes. 

An employee can file a lawsuit against you and your business to cover the medical expenses and any lost earnings. If you’re found liable, you pay the monies awarded. What’s more, whether you win or lose, the legal costs can ultimately bankrupt you and that’s why contractors have workers comp. You may take workplace safety seriously and have few accidents, but without a safety net like Workers Compensation insurance policies, you put your business on the line. 

3. You might face a penalty from the State 

While there are some states in the U.S., like Texas, that don’t make workers' compensation insurance compulsory, most others require it. However, you may face a financial penalty if you’re required by law to have workers comp but fail to follow through with it. Also, in some states, subcontractors are required to have workers' compensation in place so that they are covered should a workplace injury occur. Facing a penalty from the state because of a lack of appropriate insurance can be potentially very damaging to the business. It’s as much about protecting your business as it is protecting the employees.  

4. You’ll lose out on contracts

Clients aren’t impressed with a contractor that doesn’t have insurance. When you have no workers' compensation coverage for any of your employees, it’s a real turn-off. Remember, homeowners can find out whether or not you have workers comp. What’s more, they know they’re potentially liable for any work-related injury caused at their property. 

Homeowners are more in tune with occupational safety procedures than before and want to mitigate their risks. You may find clients turn you away because of it, even if it’s not compulsory in their state.

So this is another reason why workers' comp is greatly sought after because homeowners are less likely to take the risk. You cannot afford to reduce your client base because of a lack of insurance and that’s why having cover for work-related accidents is a necessity. 

Still not convinced about the power of workers' compensation?

All contractors need workers' compensation insurance. Yes, you have fantastic occupational safety records and over the last year, only one accident was reported. It’s great statistics for your business, but remember, a work-related injury is a common factor for most industries. It doesn’t matter if you work in construction or the cleaning industry, injuries do happen. Employees will look to you to cover their medical expenses. Can you afford to face those costs? Can you afford a lawsuit brought by injured workers?

Crissa Bulao portrait next to her biography that reads, 'Crissa Bulao is an insurance producer and writer at FarmerBrown Insurance and Contractors Liability. These companies have long been distinguished for more than 20 years of experience in providing commercial policies to all business types, regardless of size and class.'

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