What is workers compensation and do I need it?
Workers compensation is insurance that covers employees who get injured or become ill because of their job. If someone hurts their back lifting equipment, cuts their hand on a tool, or develops a repetitive stress injury from their work duties, workers comp pays for their medical treatment and a portion of their lost wages while they recover. It also covers disability benefits for more serious injuries.
Michigan requires workers compensation coverage for businesses with three or more employees. This includes full-time, part-time, and seasonal workers. Once you hit that threshold, you need coverage before those employees start working. Operating without it when required exposes you to serious penalties and personal liability if someone gets hurt on the job.
Even if you have fewer than three employees, coverage might still make sense. Without it, an injured employee could sue you directly for medical costs and lost wages. A single serious injury could threaten a small business financially. The insurance protects both the employee and the employer.
Cost depends on your industry, total payroll, and claims history. Construction and trades typically pay higher rates because the work involves more physical risk. Office-based businesses and medical practices usually pay lower rates. Premiums are calculated as a percentage of payroll, so they scale with how much you’re paying employees.
You purchase workers comp through a commercial insurance carrier or through Michigan’s assigned risk pool if you can’t find coverage in the regular market. The premium is typically paid in installments throughout the year based on estimated payroll, with an annual audit that adjusts the final amount based on actual wages paid.
The cost shows up as an operating expense in your books, usually under insurance. Your Macomb, MI bookkeepers can help make sure payroll records are accurate for the annual audit, since overstated payroll means you’re overpaying on premiums. Proper classification of employees versus independent contractors also matters because misclassification creates workers comp problems in addition to tax issues.
If you’re unsure whether you need coverage, count your employees and talk to a commercial insurance agent. Getting this wrong creates liability problems that cost far more than the premium would have been.
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