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For many Alabama business owners, having workers’ compensation insurance isn’t an option – it’s a legal requirement. In fact, it’s the only small business insurance you must have if you want to operate your business legally in Alabama. To know whether or not your business needs coverage, you need to understand Alabama’s workers’ compensation requirements.
In this article, we’ll go over how workers’ comp operates in the state of Alabama, including who is required by law to have it, who is exempt, and the penalties you might face for non-compliance. We’ll also dive into what’s workers’ comp covers in Alabama.
How does workers’ compensation insurance in Alabama work?
As an employer in Alabama, you must have workers’ compensation insurance as soon as you have five or more employees (whether part-time or full-time). Corporate officers and Limited Liability Company (LLC) members count toward the employee total. You can obtain coverage in one of four ways:
- Voluntary market: As a small business owner, you’ll probably go through the voluntary market to get workers’ comp. You can purchase a commercial policy through any insurance carrier approved by the state of Alabama.
- Assigned-risk pool: Some businesses are considered too high-risk for commercial providers. If that’s the case for your business, you can still get coverage through the involuntary market by registering with the National Council on Compensation Insurance (NCCI).
- Group self-insurance: Group self-insurance funds are made up of a group of employers who all pool their resources together. For your business to qualify for self-insured status, you must meet all the requirements set out by the Alabama Department of Industrial Relations.
- Self-insurance: If your company is large enough and can provide proof of significant stability and financial resources, you may qualify to become a self-insurer. Note that as a self-insurer, you could face long-term liability in the form of disability and ongoing care costs.
Who needs workers’ compensation insurance in Alabama?
As mentioned above, as soon as you have five or more employees, they must be covered under your workers’ compensation policy. However, there are certain types of workers who don’t need mandatory coverage, as they are not considered “employees”:
- Domestic workers
- Farm laborers
- Casual employees (who work only when needed with no guarantee of work)
- Employers operating in municipalities with populations below 2,000.
Sole proprietors and independent contractors aren’t required to carry insurance for themselves. It could be prudent to get coverage if you’re a sole proprietor because having insurance could save you thousands of dollars if you get injured while performing your work. It’s also possible that your health insurance provider will deny your claim if it’s from a work-related incident.
What are the penalties for not having workers’ comp in Alabama?
Not carrying workers’ compensation insurance against the mandate can bring about steep penalties in Alabama. You could be fined up to $1,000 per day for each employee who is not covered. If you’re found to be non-compliant, you could receive a stop-work order, forcing you to close your business until your coverage resumes. Lastly, you could even face criminal charges.
What does workers’ comp cover?
Many work-related injuries and illnesses require medical attention. That means potential ambulatory services, emergency room visits, surgery or other operations, and prescription medication. Workers’ comp can cover those medical costs for your injured employees.
If you own a gym and a customer drops a barbell on your trainers’ feet, they’ll likely need medical attention. Their care provider might issue them a pain management prescription as well. Your workers’ comp policy could cover all of those medical costs.
When employees suffer from a work-related injury or illness, they sometimes have to miss a significant amount of work. For many people, that loss of income can be devastating. Thankfully, workers’ comp can also cover a portion of their lost wages.
In Alabama, employees can receive two-thirds of their average weekly wage during the period they’re unable to work because of their injuries. If the gym employee in the above example made $900 per week and missed three weeks of work, they’d be entitled to up to $1,800 from workers’ comp.
Some work-related injuries are actually chronic conditions. Joint and muscle issues, carpal tunnel syndrome, and vision and hearing loss are all examples of lingering conditions that can be occupational. These types of conditions often require ongoing care. Physical therapy, prescription medication, and other rehabilitation costs can be covered by workers’ comp.
If one of your employees passes away from a work-related injury or illness, workers’ comp can provide their surviving family with death benefits. Eligible family members include spouses, children under the age of 18 (or under the age of 21 if enrolled in college), and adult children with mental disabilities. Siblings, parents, grandparents and grandchildren who were dependent on the deceased employee can also qualify.
In Alabama, the surviving family is entitled to 75% of the deceased employee’s average weekly wage. Compensation can continue for no more than 500 weeks. Family members can also receive a lump-sum payment to cover funeral costs or any other burial expenses.