Workers Compensation Insurance For Small Business




Running a small business comes with many challenges – one such challenge could come in the form of an employee getting injured or falling ill while on duty. As the owner of the business, you are responsible for the safety of your staff during work hours. Therefore, you will be held financially liable for the employee’s accident or illness.

For that reason and potentially many others, employers must have a workers’ compensation insurance policy to offset such financial setbacks.

Unfortunately, accidents are common in the workplace; therefore, business owners are highly encouraged to have workers’ compensation insurance to safeguard their businesses against employee lawsuits or claims.

However, business owners may implement several safety and wellness measures to mitigate the risks of work-related illness or injury, therefore decreasing the possible financial impact of employee claims.


What Is Workers Compensation Insurance?

Workers compensation is also commonly referred to as workers comp or workman’s comp insurance – for short. The insurance covers costs related to employee injury, disability, or illness sustained at work.

In South Africa, employers with one or more employees (except for households) are eligible to register with the Compensation Fund. This is to safeguard their employees against the risk of occupational injury, illness, or death.

The Compensation for Occupational Injuries and Diseases Act (COIDA) is statutory insurance implemented to protect both the employee and the employer. The insurance guarantees the employee injury or illness-related benefits while protecting the employer from occupational injury or illness lawsuits or claims.

The Difference Between General Liability And Workers Comp Insurance

General liability or employers liability insurance is a policy that covers a broader scope of employee claims against the employer. Unlike workers’ compensation insurance which only pays out benefits due to accidental injury or illness, employer’s liability insurance covers claims or lawsuits filed based on the employer’s negligence.

Employers’ liability insurance typically covers accidental injury or illness claims. In addition to that, the policy also safeguards employers against lawsuits based on discrimination, unfair treatment or dismissal, unpaid wages, and more.

Another policy to consider, is the employee benefits liability cover. This cover safeguards employers from errors or omissions made in the employee benefits administration and registration process.


What Does Workers Comp Cover?

A comprehensive workers’ compensation insurance policy will typically cover claims related to occupational injuries, illnesses, or death. Workers comp also covers other hidden costs incurred as a result of the injury or disease.

A worker’s compensation policy may cover additional costs such as:

  • Rehabilitation or physiotherapy
  • Trauma counselling
  • Missed salary or wages
  • Hospitalisation costs
  • Funeral costs
  • Income support for widows or widowers and dependents (usually lasts for a set period)

Who Is Not Eligible For Workers Compensation Cover?

The Compensation Fund only allows employers with one or more employees to register on their database. This means sole proprietors, freelancers, and independent contractors cannot register and claim for workman’s compensation benefits.

Other workers that are non-eligible for workman’s compensation insurance include:

  • Domestic workers – who work in single households (For example, a domestic worker working for a boarding house or a cleaning services company is eligible for workers comp)
  • Sub-contractors
  • Individuals working outside of South Africa
  • Civil servants who work in state defence and law enforcement, such as members of the SAPS and SANDF
  • Volunteers
  • Seasonal or casual workers

When Does Workers Compensation Insurance Not Pay Out?

South African law states that an employee may not be fully eligible for workman’s comp benefits due to the following reasons:

  • Claims not reported within 12 months of injury, illness, or death
  • Injuries or illnesses that last less than three days (COIDA will only cover the employee’s medical costs)
  • Employees found guilty of intentional negligence or misconduct (unless the employee dies or is critically disabled)
  • Injury or illness that occurs outside of the workplace

Workers’ Compensation For Small Business

Workers’ compensation insurance is an essential type of small business insurance as it offsets significant financial distress. Due to the lack of high output, smaller businesses with one or two employees are more susceptible to more substantial financial loss if business operations stop.

Although other small business owners, such as self-employed individuals or freelancers, may not be eligible to register for workman’s comp, they can get alternative forms of business insurance. These include general liability, commercial liability, loss-of-income protection, and business interruption liability cover.

What Makes Workers Compensation Insurance For Small Businesses Different?

The state requires all businesses with one or more employees to register for workers comp insurance. However, small businesses enjoy some special privileges.

Small businesses are eligible to acquire customizable coverage based on the following factors:

  • Payroll size
  • Nature of business and associated risks
  • Number of employees
  • Location
  • Claims history

These factors play a huge role in minimising the overall cost of insurance for small businesses.


Workers Compensation Insurance Cost

The Compensation Fund requires employers to pay a yearly assessment fee – the fee is calculated based on employees’ incomes and the assessment tariff. The assessment tariff depends on the risks associated with the work’s nature.

The Compensation Fund uses the following equation to calculate the assessment fee:

Assessment Fee = Total Employees’ Pay / (Assessment Tariff x 100)

The assessment fee is subject to annual review. As per the employer’s claims or lawsuit costs, the payment can either increase or decrease. Employers with lower claims costs may be eligible for an assessment fee rebate.

Final Thoughts On Workers Compensation Insurance

Accidents in the workplace are often unavoidable and can have a massive financial impact on the business. Hence, it is highly advisable for companies, especially newly incorporated businesses, to be registered with the Compensation Fund. The fund will ensure their protection from occupational injury or illness-related lawsuits and claims.

Although smaller businesses are eligible to contribute less to the Compensation Fund, primarily due to their payroll size. They may want to consider getting extended business coverage like employers’ liability insurance that pays out for claims outside of workplace injury, illness, or death. Small businesses are more at risk of employee lawsuits and claims; therefore, extended coverage will come in handy should the need arise.

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2 responses to “Workers Compensation Insurance For Small Business”
  1. […] is also known as comprehensive cover, although it does not cover all liability claims, such as workers’ compensation and professional liability […]

  2. […] worker’s compensation policy would cover lawsuits for worker injuries, replacement wages should they be off-duty for a while, […]