If you run a business, you’ve likely heard of workers' compensation insurance, but what exactly does it cover, and do you really need it? Whether you're hiring your first employee or managing a growing team in Worthington or Sioux Falls, understanding what workers’ compensation insurance is could be the difference between a minor accident and a major financial setback.
At First State Insurance, we help businesses across Minnesota and South Dakota protect their teams and their bottom line with the right workers' comp coverage. In this post, we’ll explain what workers’ compensation insurance is, what it covers, who needs it, and how it can shield your business from costly claims and legal trouble.
What Is Workers’ Compensation Insurance?
Workers’ compensation insurance is a form of business insurance that provides medical, wage, and disability benefits to employees who suffer work-related injuries or illnesses. In exchange, employees typically forfeit the right to sue their employer for those injuries.
This system protects both sides: employees receive the care and income they need to recover, while employers are shielded from most lawsuits that arise from workplace accidents.
Most states require businesses with at least one employee to carry workers’ comp coverage. Failing to do so can result in hefty fines, stop-work orders, or even jail time in extreme cases.
What Does Workers' Compensation Insurance Cover?
Workers' compensation typically covers five key areas:
1. Medical Expenses
This includes emergency care, surgeries, prescriptions, physical therapy, and ongoing treatment related to a work injury or illness.
Example: A construction worker in Sioux Falls falls off scaffolding and needs back surgery, workers' comp covers the hospital bill.
2. Lost Wages
If an employee can't work due to an injury, workers' comp helps replace a portion of their lost income, usually around ⅔ of their average weekly wage, subject to state-specific maximums.
Example: A cook in Worthington burns their hand badly and is out for two weeks. Workers’ comp covers part of their missed paycheck.
3. Disability Benefits
If the injury leads to permanent or partial disability, the policy provides compensation based on the severity and type of disability, as defined by state laws.
4. Vocational Rehabilitation
If the employee can’t return to their original job, workers' comp may pay for training or career counseling to help them find a new role.
5. Death Benefits
If the worst happens, the policy provides financial support for surviving family members, including funeral costs and ongoing payments to dependents.
What’s Not Covered by Workers’ Comp?
While workers’ comp is broad, it doesn’t cover everything. Here are a few common exclusions:
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Injuries that happen outside of work duties
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Self-inflicted injuries or those caused by intoxication
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Injuries that occur while commuting (unless in a company vehicle)
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Violations of company policy
If an employee is hurt while horse playing in the warehouse or under the influence, the claim may be denied.
Is Workers’ Compensation Insurance Required?
In Minnesota, according to the Minnesota Department of Labor and Industry, any employer with even one part-time, full-time, or seasonal employee must carry workers’ compensation insurance.
Similarly, in South Dakota it's also required, but with a twist. According to the South Dakota Department of Labor, the state does not mandate workers’ comp in the same way, but employers who don’t carry it can be sued directly by employees and lose standard legal defenses in court. For this reason, most South Dakota businesses still choose to carry it.
Which Industries Are Most at Risk?
According to the U.S. Bureau of Labor Statistics, your business involves physical labor, machinery, driving, or customer interaction, workers’ comp isn’t just a box to check, it’s a critical form of risk management. At First State Insurance, we commonly write policies for:
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Contractors and Construction Firms
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Trucking Companies
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Retail Stores
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Restaurants and Food Service Businesses
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Medical and Health Service Providers
Each of these industries faces unique injury risks, and state laws don’t give you much room to operate uninsured.
How Much Does Workers’ Comp Cost?
The cost of workers’ compensation insurance varies depending on:
According to the National Council on Compensation Insurance (NCCI), the average premium for low-risk office jobs is around $0.15 per $100 of payroll, while high-risk industries like construction may pay $3.00–$6.00 per $100. Tip: You can reduce your premium over time by improving workplace safety, implementing return-to-work programs, and maintaining a clean claims record.
Why It Pays to Work With a Local Agent
Unlike generic online quote engines, working with a local agency like First State Insurance ensures your policy is built for your specific business. We understand local regulations in both Minnesota and South Dakota, and we can often find policy discounts or risk management strategies you might miss on your own.
We also help you navigate:
Whether you’re insuring a two-person retail shop in Worthington or a 20-driver trucking operation in Sioux Falls, we’re here to help.
Final Thoughts: Protect Your People—and Your Business
It's clear that workers' compensation is a safety net that protects your team and your livelihood when the unexpected happens. If you hire even one employee in Minnesota or South Dakota, you need to understand your obligations, and your options.
Contact our team at First State Insurance today to discuss a workers’ comp policy that fits your business, industry, and budget. We’ll help you stay compliant, reduce risks, and keep your people protected.