Workers’ Comp 101: What Small Business Owners Need to Know

If you’re like most small business owners, handling workers’ compensation for the first time can feel overwhelming. You’ve got a growing team, a never-ending to-do list, and now someone mentions “workers’ comp” and your mind goes to worst-case scenarios.

Here’s the good news: Workers’ comp doesn’t have to be scary. In fact, understanding the basics can help protect your business and your employees—and give you one less thing to stress about.

Let’s walk through what workers’ compensation actually is, whether you need it, and how to set it up the right way.

What Is Workers’ Comp, Really?

It’s Employee Protection (and Business Protection Too)

Workers’ compensation is a type of insurance that covers employees if they get injured or sick because of their job. It typically pays for:

• Medical expenses
  
  
• Lost wages while they recover
  
  
• Rehab costs
  
  
• Death benefits, if the worst happens
  
  

But it also protects you, the employer. When workers’ comp is in place, employees usually give up the right to sue you for workplace injuries. That’s a huge deal if you want to avoid legal drama or big out-of-pocket settlements.

It’s Required in Most States

Most states require businesses with employees (even just one) to carry workers’ comp insurance. The rules vary by location, but ignoring them can lead to fines, penalties, and headaches from your state labor department.

Do You Really Need Workers’ Comp?

Ask Yourself These 3 Questions:

1. Do I have any W-2 employees?
    If yes, then in most states, you’re required to carry workers’ comp—no exceptions.
   
   
2. What about 1099 contractors?
    It’s tricky. Some states may still hold you liable if a contractor gets hurt and is functionally acting like an employee. Always check local rules or talk to an expert.
   
   
3. Is my business high-risk?
    If your employees lift, drive, cut, cook, or build—there’s more risk, and coverage is even more important. But even desk jobs come with injury risks (think: carpal tunnel, slips on wet floors, or falling equipment).
   
   

How Do You Get Workers’ Comp Coverage?

Option 1: Go Through a Private Insurance Provider

Most small business owners buy workers’ comp insurance through a private insurance company or a broker. It’s similar to buying auto or health insurance—compare quotes and pick a policy that fits your team and risk level.

Option 2: Get It Through Your Payroll Provider

Many payroll providers (including Cadence) can help you set up workers’ comp and even pay premiums based on actual payroll. That means no big surprises at the end of the year, which makes cash flow easier to manage.

What Does Workers’ Comp Cost?

It Depends on a Few Things:

• Your total payroll: More people = more risk.
  
  
• Employee roles: A retail cashier costs less to insure than a roofer.
  
  
• Your claims history: Fewer past incidents = better rates.
  
  
• Your state: Each state sets base rates and requirements.
  
  

For many small businesses, you’re looking at anywhere from $0.75 to $2.50 per $100 in payroll, but your mileage may vary. Getting a quote is the only way to know for sure.

What Happens If You Don’t Have It?

Short answer: It’s not worth the risk.

If an employee gets hurt and you don’t have coverage, you could be on the hook for all their medical costs, lost wages, and more. Not to mention penalties, lawsuits, and reputational damage.

Many business owners think, “We’re safe—we haven’t had any issues.” But it only takes one accident to change that. And once you have employees, it’s no longer optional.

Workers’ Comp Doesn’t Have to Be Complicated

You’re building a business, managing people, and wearing 20 hats. Workers’ comp doesn’t need to be the one that keeps you up at night.

The key is getting clear on what it is, why it matters, and how to get it set up properly—so you can protect your business and take care of your people at the same time.