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Workers’ compensation insurance is a type of insurance that protects employers and their employees against the risk of injury at work. In this article, we will discuss what workers’ compensation insurance covers, how much it costs to get it, and who provides these policies on your behalf.
Workers’ Compensation Insurance is a type of insurance policy that provides compensation to employees who are injured or killed on the job. It is also required by law in many states and countries.
Most states mandate workers’ compensation insurance to pay medical expenses, rehabilitation costs, and lost income for employees who are injured or suffer from a work-related sickness. The cost of your company varies based on variables such as its location, industry, and payroll. Small company owners typically pay an annual workers’ compensation premium of $450 per employee.
Obtaining a low-cost workers’ compensation policy requires accurately categorizing employees and maintaining accurate payroll records. Small company owners may use The Hartford’s pay-as-you-go service to make workers’ compensation insurance prices more indicative of current employees rather than a guess at yearly payroll.
What Is Workers’ Compensation Insurance and How Does It Work?
Workers’ compensation insurance is regulated by each state, although most require companies to acquire a coverage to cover workplace injuries and occupational illnesses. In return, coverage reduces the risk of workplace litigation, fines, or penalties for the company, while also providing workers with the resources they need to recover, such as surgery, rehabilitation, drugs, or disability compensation.
Workers’ compensation insurance is a no-fault policy, which means it pays regardless of whether the employee or the business is at fault. Employees can’t usually sue their employers while collecting workers’ compensation payments. Many workers’ compensation insurance also contain employer liability coverage, which pays for lawsuits, settlements, and judgments against the company if an employee claims their on-the-job accident was caused by carelessness on the part of their employer.
What Is Covered by Workers’ Compensation Insurance?
Workers’ compensation insurance, which varies by state, covers the expenditures of any full-time or part-time employee who is injured on the job. With the exception of Texas, coverage is required in 49 of the 50 states for any company with workers. There are disparities in coverage since it isn’t officially required.
Workers’ compensation plans are divided into four categories:
Wages lost: Provides workers with a portion of their typical weekly income when they are unable to work due to illness or injury.
Medical Costs: Covers medical expenses, as well as physical and occupational treatment.
Death benefit: Provides financial assistance to surviving family members owing to the loss of a dead employee’s income.
Legal: If an employee sues the employer for carelessness, the legal costs, court fees, and other expenditures are covered.
The definition of a work-related injury varies by state, although most encompass injuries that occur on-site as well as those that occur off-site, such as at a client’s location. Workers’ compensation will pay for the injury as long as it is connected to the employee’s employment.
What Doesn’t Workers’ Compensation Insurance Cover?
Some states will pay for any job injury if it was not caused by willful personal harm or gained through illicit means. In other areas, coverage is limited to injuries that are directly tied to an employee’s work obligations. This often results in claim rejections for:
- Injuries caused by oneself
- Employee roughhousing-related injuries
- Accidents that occur while traveling to and from work
- Injuries suffered while participating in volunteer leisure activities
- Accidents that occur when performing a crime or when an employee violates corporate regulations.
- Injuries caused by drugs or alcohol
Workers’ Compensation Insurance: Who Needs It?
Workers’ compensation coverage is required by state law, but it is a good idea for any firm with employees to get it. Workers’ compensation insurance is needed in many states if you have even one employee, while others only require coverage if you reach a particular number of employees. Workers’ compensation is required for the following reasons:
Employer: If an employee sues, alleging that their damage was caused by your carelessness, your firm is typically insured. Your legal fees, as well as any possible damages owing to the employee, are covered.
Workers: Workers’ compensation pays a percentage of your employees’ lost income as well as medical expenses if they are injured on the job.
Exemptions from Workers’ Compensation Insurance
Because workers’ compensation laws are regulated by states, each may specify who requires coverage and who does not. The following are examples of common workers’ compensation insurance exclusions:
- Independent contractors are not considered employees of a company by definition, thus they are not entitled to workers’ compensation payments. If you misclassify employees as independent contractors, you may be liable for payroll taxes.
- Immediate family members: Immediate family members are often excluded from coverage since they may assist with the company on occasion but do not classify as employees.
- Limited liability company (LLC) members & corporate officers: Again, LLC members and corporate officers often aren’t viewed as actual employees of the business, but many states do allow them to opt into coverage.
Even if these persons are excluded in your state, you may still get workers’ compensation coverage for them in most situations. Self-employed workers’ compensation may be available to business owners who do not have staff.
What Is the Cost of Workers’ Compensation Insurance?
The cost of workers’ compensation insurance varies a lot based on your business and where you live. Most carriers provide plans for one or two workers in low-risk sectors beginning at $250 per year. Rates rise as the employees’ categorization risk rises, frequently topping hundreds of dollars per year. The Occupational Safety and Health Administration’s (OSHA) injury cost calculator may assist company owners to figure out how much it would cost them if they didn’t have workers’ compensation insurance.
What is the formula for calculating workers’ compensation?
The premium a company pays is calculated using a simple formula that takes into account the job type, the company’s claims history, and the overall payroll. Workers’ compensation is calculated on a per-hundred-dollar payroll basis.
Classification codes are used to evaluate the amount of risk associated with certain employment. The National Council on Compensation Insurance (NCCI) manages hundreds of codes in 38 states, each one representing a certain kind of work. For workers’ compensation, the remaining states either employ their own rating bureaus or function as a monopoly.
An experience modification rate (EMR) is a multiplier that begins at 1.0 and is used to evaluate whether an employer should pay more or less for workers’ compensation claims depending on the number and kinds of claims they’ve had.
Workers’ compensation rates are then added to your entire expected yearly payroll, and your workers’ compensation premium is calculated.
Recently in the news:
During the COVID-19 crisis, employers in the 38 states that utilize the NCCI’s grading system may be allowed to omit part of their payroll. The agency recently declared that firms that have suspended operations would be able to reclassify workers who are unable to work but are being paid. The wages of these employees will be excluded from the company’s workers’ compensation premium calculations as a result of reclassification.
State-by-State Worker’s Compensation Insurance Requirements
Each state regulates workers’ compensation on its own. This implies that every date, method, and reward, as well as any penalty for non-compliance, differs by state. Employers must be aware of their state’s requirements in order to avoid legal and criminal consequences.
Industry-Specific Workers’ Compensation Requirements
Even if you are exempt under the basic principles, there are typically workers’ compensation regulations for specialized sectors in addition to state legislation. Construction businesses, for example, are often obliged to have workers’ compensation insurance, even if their employee counts are below the minimum level, owing to the increased risk of an accident. Contractors working for the government are normally obligated to offer workers’ compensation to their employees.
Penalties for Failure to Maintain Worker’s Compensation Insurance
Employers are required by law to have workers’ compensation insurance. You might face fines, penalties, and even prison time if you don’t get workers’ compensation. The severity of a punishment is determined by both the state and the gravity of the violation. Employees may sue you and your company in most jurisdictions to recoup lost pay and medical bills. When you apply for insurance, being without coverage makes it more difficult to secure a policy.
Failure to have workers’ compensation insurance, for example, is a criminal crime in New Jersey, with offenders risking penalties of up to $10,000 and up to 18 months in prison. Employers in Illinois face fines of up to $500 for each day of noncompliance.
What is Workers’ Compensation Insurance and How Do I Get It?
Workers’ compensation insurance is often purchased on the open market from a private insurer, much like other forms of company insurance. You can purchase state-funded workers’ compensation in various states. Some company owners may also self-insure or use a professional employer association to get coverage.
Carrier (Private)
Workers’ compensation insurance is available from a commercial insurance provider. If you need to purchase additional policies in addition to workers’ compensation, such as commercial general liability or a business owner’s policy (BOP), and you want to have all of your company insurance policies in one location, this is the ideal option. The top workers’ compensation businesses strive to educate employers about workplace safety and to make the process of purchasing and paying for workers’ compensation insurance as simple as possible.
Which Workers’ Compensation Insurance Company Should You Choose?
Fund of the State
If your business is in a high-risk industry or you have existing workers’ comp claims, obtaining insurance from your Fund of the State might be the right choice. Fund of the States often guarantees coverage for businesses that struggle to find coverage with a Carrier (Private). Not all states have a fund. However, Ohio, North Dakota, Washington, and Wyoming require businesses to purchase workers’ comp from the Fund of the State.
Self-insurance
The rules for offering self-insurance differ from jurisdiction to state. Some states permit it, while others do not. In general, they demand that enterprises satisfy certain financial criteria, post a bond, and engage an administrator. In most cases, you’ll also need to show that you’re serious about loss prevention and complete a feasibility study.
Employer Organization for Professionals
Employer Organization for Professionals (PEO) is best if your EMR isn’t great, and your existing premiums are too high. That’s because instead of being quoted based on your claims history, you’ll have the benefit of your employees being pooled with others. That results in a group rate that’s often lower than what your business might qualify for on its own.
What Is the Process for Filing a Workers’ Compensation Insurance Claim?
We’ve already said it, and we’ll say it again: The claim procedure, like other elements of workers’ compensation, differs by state. When an employee gets hurt on the job, the employer usually only has a certain amount of time to file a claim. The claim might be dismissed if all parties involved do not respond quickly. When submitting a claim, the employer must do the following:
- Provide the wounded worker with the necessary papers and instructions.
- Make a claim with their insurance company.
- Follow state legislation when it comes to reporting work-related injuries or illnesses.
Most Commonly Asked Questions (FAQs)
What if my company is located in one state, but my employees are required to travel to other states for work?
Most states protect workers who travel to another state for business, although some have restrictions on the scope of coverage. Some, for instance, terminate coverage after a certain number of days. In certain cases, employees must satisfy particular requirements in order to be covered. Business owners with traveling staff should speak with their representatives about their circumstances.
Why do my employees need workers’ compensation insurance when they have health insurance?
Workplace injuries are not covered by health insurance. If an employee informs a medical provider about the injury, the health insurance company will contact the employer and charge the expenses to the employer’s workers’ compensation policy. Employers that do not have workers’ compensation insurance risk being sued by the injured worker or the insurance company, as well as facing state fines and penalties.
What if I believe my employees have been misclassified?
Every small business owner should check their insurance company’s workforce classification system for workers’ compensation prices. This should be done at the start of the policy, as well as at every audit and renewal, to verify that you aren’t paying construction worker rates for an office clerk or that you aren’t covering personnel who have been classed as independent contractors. Look up NCCI codes for job courses and discuss any differences with your agent.
Conclusion
Workers’ compensation insurance is needed by law for the great majority of enterprises. Those who are exempt, on the other hand, should carefully consider acquiring insurance to insure their employees and shield themselves from legal liability if they are injured on the job.
Working with a workers’ compensation insurance consultant may help company owners keep expenses under control while also ensuring that they have the necessary coverage in place at all times. With a quick, no-obligation quotation, The Hartford can assist you.
