Start-ups that are just getting their business off the ground can run into several workers’ compensation insurance stumbling blocks along the way. The first obstacle that these entrepreneurs can encounter is their understanding of when they need to purchase workers’ comp insurance in the first place.
“There are different requirements based on the number of employees that you have and based on the state that you’re in. We see instances where somebody will purchase workers’ comp insurance before they have any employees just to be super safe, and then you see other instances where people say, ‘Oh, I didn’t think I needed it until I had five or six employees’ and that particular state may require you to have it once you have one or two or three,” said Matthew Zender, senior vice president and workers’ compensation product manager at AmTrust Financial Services.
“I think that’s the number one challenge for a new business owner [because] it’s also not always apparent when your start date is going to be necessarily. If you’re opening up a business for the first time, you could be subject to contractors or licensing, or you think your start date might be September 01, but maybe it’s October 01 based on delays.”
The number two challenge, says Zender, is that when someone is starting up their business, they’re often acting as the Jack or Jacqueline of all trades, as are their employees. A few years down the road, an employee’s role might be more distinct, but at the beginning, everyone might need to pitch in on things that aren’t part of their job description, such as clean-up or even construction.
“That’s definitely going to be a challenge for new business owners, is making sure that they’re staying safe and that [their employees] are now working in a manner that’s not going to get them injured,” explained Zender.
In the same vein, prioritizing safety might not be top of mind, not only because the owner is busy, but because they haven’t had experience with an employee being injured before.
“They don’t know how to file the workers’ comp claim, they don’t know where to send them for initial medical care, and they just aren’t familiar with the process. Furthermore, they also perhaps aren’t as aware of how disruptive it can be, both for the worker and for their business, so they’re maybe not quite as sensitive to how safely they should be working,” explained Zender. “They haven’t had that negative feedback loop from seeing how impactful it can be and also how costly it can be. If you’re a new business, you’ve maybe never had any claims, so you didn’t get the experience of how downstream expensive it can be because it does cost you money based on increased premiums, it costs you money based on just loss of productivity, and a whole host of other areas.”
Retail businesses and restaurants are the most common sectors for new businesses since there are few barriers to entry. Artisan contracting likewise often involves many start-up businesses, where an individual might venture out on their own after getting experience working for someone else. For these and other new business ventures, the rules and definitions around independent contractors can also be difficult to understand, presenting yet another challenge.
“We see claims that come through where the employer says, ‘That’s not my employee, they were just doing this for me.’ When you’re getting off the ground and you’ve got all these people chipping in and helping out, you may think that you’ve got someone who’s truly an independent contractor, but [you need to take] the time and care to make sure that they in fact are in business for themselves,” Zender told Insurance Business. “If you’re particularly careful, you’ll know to check to make sure that they have their own workers’ compensation insurance because if they don’t, you may very well find that an injury falls under your workers’ compensation insurance, or worse yet, that injury can fall under you personally, if you haven’t purchased workers’ compensation insurance yet.”
Insurers like AmTrust can bring value to new business owners in a few ways.
“We are fans of writing new ventures. It’s a segment of business that we’re keen to provide workers’ comp support for,” said Zender. “From a support perspective, all of the agents that we work with are well-versed in the requirements of workers’ compensation. We also work to provide education support on our website and through marketing literature that can help businesses understand what their requirements are. We publish studies to help educate businesses on when they would need insurance and what to be looking for, and we try and make sure that we’re supporting that segment as much as possible.”