Do You Need Workers' Compensation Insurance?

Let's say you hire a worker part-time for the summer to help you care for children in your family child care business. The worker falls down the back steps of your home and suffers a broken leg. Unfortunately, you didn't properly withhold payroll taxes for this worker.

Your biggest problem will not be that the IRS may track you down and make you pay back payroll taxes.

Instead, you should worry more that your state workers' compensation office will come after you for failing to purchase workers' compensation insurance. Why? Because you could be forced to pay the entire medical bill of your worker as well as a stiff penalty (into the thousands of dollars in some states).

Unfortunately, many family child care providers are not aware of this peril and don't purchase workers' compensation insurance when they should.

Workers' compensation insurance covers the injuries of employees who are injured while on the job. Injured workers can receive benefits such as payment of medical bills, lost wages, disability income benefits, and more. State laws vary, but in most states child care providers must purchase workers' compensation insurance whether hiring part or full-time employees. In some states you may even be required to purchase this insurance when hiring family members!

Claiming that your worker is an independent contractors won't relieve you of your responsibility to purchase this insurance. The worker's health insurance policy won't cover her when she is injured on the job. Instead, the worker will have no recourse except to make a workers' compensation claim. If you have a business liability insurance policy it will not cover you for injuries suffered by your employees. 

The cost of workers' compensation insurance is usually based on the amount of wages you pay in a year. To purchase this insurance contact your business liability insurance agent or an independent insurance agent. You can also contact your state workers' compensation insurance office for assistance.

For more information see my Family Child Care Legal and Insurance Guide.

This is the fifth in a series of articles about hiring workers for your business.

See also: "Your Payroll Tax Responsibilities as an Employer", "To Hire a Relative or Not?", "Are Helpers Your Employees or Independent Contractors?", "What is an Independent Contractor?", and "When Hiring Your Husband Makes Sense."

Image credit: thefeltnergroup.com

For more information, see my book Family Child Care Tax Workbook and Organizer.

 

 

 

Copyright 2011, Tom Copeland, www.tomcopelandblog.com

Comments

[Shiketa]

Thanks for sharing this Tom. 2-years ago I only had 4 employees and was not required to have workmans comp insurance in the state of Missouri. One of my employees allegedly was injured on the playground. That claim cost me over $2500. It was cheeper to have insurance. It is best to have workers comp insurance...it will save your business money.

[Colleen]

Ladies – if you have employees DO NOT find out the hard way on this one!!! About 3 years ago now I had a helper who supposedly sprang her ankle getting up off the floor after patting a child’s back to help the child fall asleep. It seems a little coincidental that her hubby was also at home that week because he had just had some sort of surgery but she NEVER asked me to take the time off with him – they needed to money in her words. So she “hurt” her ankle and went to the doctor who prescribed her some “Aleve” and said she could not work for a week. She called me to say what was going on and mentioned workers comp and I told her I did not have that. NOT GOOD!!! I paid her the time she was off the entire week, paid her co-pays at the doctor and her prescriptions. When she came back to work I sat down with her to talk to her as she wanted a raise in her paycheck and she got hostile and threatened me. Luckily my hubby was home that day and heard it all – when she threatened me I told her to punch out and leave, she was fired as she was yelling and was not acting in a safe manner around the children who were napping. She left! I called licensing to let them know I fired her on the spot and what had happened. Three days later I had the Labor Board knocking on my door!!! I knew INSTANTLY why they were here and since I had already hired another assistant I was fined $2000 for having both of them here when he was here in my home! I had 24 hours to get worker comp or be shut down by the state. I was able to get the coverage at the cost of $900 through an agency called State Fund and all the paperwork was faxed over to the Labor Board office. I could have been fined MUCH more for not having all the required job posting as well but he left me a list and let that go.&nb! sp; I still have workers comp but through another company called Hartford that works with my payroll company PayCycle and it only costs me roughly $ 60 to $70 every other week after I run my payroll. Get workers comp if you have employees…the civil penalty by the way that I was charged IS NOT tax deductable by the way and I had to “eat” the $2000 fine!!!

[Abesbaumann.com]

After reading all the stories it makes me realize how important it is to get a workers comp insurance. Before it's too late I'd rather have one now.