Workers' Comp 101: What Every Business Owner Needs to Know — And How Your CPA Can Help

If you’re a business owner with employees—even just one—workers’ compensation insurance isn’t optional. It’s a legal requirement in almost every state, and it’s one of those things that’s easy to overlook… until something goes wrong.

In this article, we’ll break down what workers’ comp is, how it works, and the role your CPA can play in helping you stay compliant and avoid overpaying.

What Is Workers’ Compensation?

Workers’ compensation (often called workers’ comp) is an insurance policy that covers medical expenses, lost wages, and disability benefits if an employee gets injured or becomes ill as a result of their job.

In exchange for this protection, the employee usually agrees not to sue the employer. It’s a system designed to protect both parties—and it’s mandatory in most states.

Do I Really Need It?

If you have employees, the short answer is: yes.

Most states require it by law, and failure to carry coverage can result in:

• Hefty fines and penalties

• Personal liability for injuries

• Lawsuits or even criminal charges in some states

  
  

Even if you have a small team or work with contractors, it’s worth talking to a CPA or advisor to make sure you’re properly covered.

High-Risk Industries Where Workers' Comp Is Critical

While all employers are required to carry workers' comp, it plays an even more vital role in industries where the risk of injury is higher. These include:

🚧 Construction & Contracting

Employees working on rooftops, ladders, power tools, or construction sites are exposed to constant physical risk. Whether it's a general contractor or a solo electrician, coverage is a must.

🧰 Maintenance & Repair Services

From HVAC technicians to janitorial staff and landscapers—these roles involve tools, chemicals, and physical labor that can result in injuries on the job.

🏭 Warehouse & Logistics

Warehouse workers, forklift operators, and delivery drivers face heavy lifting, machinery, and fast-paced environments that make injury more likely.

🧑‍🔧 Manufacturing

From machinery accidents to repetitive motion injuries, manufacturing employees need robust coverage—and proper job classification is essential for managing costs.

🏢 Office Workers (Yes, Them Too!)

Even in lower-risk jobs, injuries like slips, falls, or carpal tunnel syndrome can happen. Workers’ comp applies here as well—even if your business is primarily administrative.

Employee vs. Contractor: Why Classification Matters

One of the biggest mistakes business owners make—especially in construction, maintenance, and gig-based industries—is misclassifying workers.

What’s the Difference?

• Employees: You control how and when they work; you’re responsible for payroll taxes and workers’ comp.

  
  

• Independent Contractors: They run their own business, bring their own tools, and control how they get the job done.

  
  

Why It Matters for Workers’ Comp

If you classify a worker as a contractor but the insurance carrier (or state) determines they’re legally an employee, you could be held liable for:

• Unpaid workers' comp premiums

• Penalties and interest

• Injuries or claims not previously covered

  
  

In a Workers’ Comp Audit…

An audit will review your payroll records, contractor payments, and job roles. If a contractor is deemed to be an employee in practice, their wages may be added to your premium calculation retroactively—leading to a large, unexpected bill.

How Do Businesses Get Workers’ Comp Insurance?

You typically have two main options:

1. Through Your Payroll Provider (Pay-As-You-Go)

Many payroll companies like Gusto, ADP, and Paychex offer workers' comp in partnership with insurance carriers. This setup allows you to:

• Pay premiums based on actual payroll (not estimates)

• Avoid big year-end surprises

• Automate payments each time you run payroll

• Simplify recordkeeping and reduce audit risk

  
  

This is often called pay-as-you-go workers’ comp, and it’s a favorite for small and mid-sized businesses looking to reduce cash flow strain and administrative headaches.

2. Through an Insurance Broker or Direct Carrier

This traditional route gives you more flexibility in choosing policies and bundling with other coverage. You’ll:

• Shop around for the best rates

• Pay an estimated annual premium upfront

• Report payroll manually (monthly or quarterly)

• Adjust the premium after the year-end audit

  
  

This may be a better fit for larger or more complex businesses—or those with unique coverage needs.

So, Where Does a CPA Come In?

A CPA isn’t selling you the insurance, but we are your behind-the-scenes partner to make sure everything runs smoothly. Here’s how we help:

✅ Ensure Proper Employee Classification

Different job roles carry different risk levels. A CPA helps you classify employees correctly so you’re not overpaying for coverage—or risking underpayment penalties.

✅ Prepare for Insurance Audits

At the end of the year, insurance carriers audit your records to make sure premiums match your actual payroll. We help organize and present your data to make that process painless.

✅ Help You Choose the Right Setup

We can walk you through whether a pay-as-you-go model makes more sense for your business or if traditional coverage is more cost-effective.

✅ Spot Mistakes and Save You Money

We regularly review your workers’ comp costs to identify errors, outdated classifications, or uncovered risks—and advise on how to fix them.

✅ Stay Compliant With State Rules

Every state has different regulations. Your CPA keeps you compliant, whether you’re hiring your first employee or expanding across state lines.

📢 Final Thought

Workers’ comp might seem like just another line item on your expense sheet—but managing it correctly can save you time, money, and major legal headaches. Whether you’re launching a new business or scaling your team, make sure you’ve got the right insurance in place—and a CPA who knows how to keep it working for you.

Cam Betancourt, CPA

Founder, Betancourt Business Advisors