Workers’ Compensation Insurance

Workers’ Compensation Insurance: The Ultimate Guide

Workers’ compensation insurance is a state-mandated insurance that provides income, medical benefits, and rehabilitative services for workers injured on the job or while performing work-related duties. 

It ensures that injured workers receive financial compensation for medical care and for a portion of the income they lose while they are unable to work. 

Workers’ compensation insurance also helps protect employers from lawsuits initiated by workers injured on the job. 

Here’s everything you need to know about workers’ compensation insurance. 

What is Workers’ Compensation Insurance?

Employers have a legal obligation to make sure that the workplace is as safe as possible for employees. Unfortunately, even the safest workplace has an accident. When that happens you need a worker compensation insurance policy.

There are 2 purposes for workers’ compensation insurance:

  • Providing injured workers with proper medical coverage.
  • Provides workers who are injured and can’t return to work with a portion of their income.
  • Protects employers from lawsuits by workers injured while working.
  • If a worker is killed while working, workers comp provides death benefits for the worker’s dependents.

Workers receive benefits regardless of who was at fault in the accident.

Which of the Following is Included Under Workers Compensation Insurance?

Workers’ compensation coverage is intended to pay medical expenses resulting from a work-related injury or work-related disease or illness. It will also compensate for some lost wages if the employee qualifies. The benefits employees receive are based on the severity and type of the injury or illness:

  • Medical Benefits – pays for medical care to treat a work-related injury
  • Income Benefits – pays a portion of the employee’s lost wages
  • Death Benefit – pays lost wages to the family of an employee killed on the job.
  • Burial Benefit – pays a portion of funeral expenses

What Does Workers’ Compensation Insurance Not Cover

There are some items that are not covered by this policy, including:

  • Self-inflicted or intentional injuries
  • Drug or alcohol-related
  • Claims resulting from off-duty voluntary recreational or social events
  • “Acts of God” like flood or hurricane unless the job has a normal risk of such injuries

How Does Workers’ Compensation Insurance Work?

Workman’s compensation insurance works differently depending on the state where your business is located. In most states, all injuries must be reported to employers within 30 days. 

Injured or ill employees have up to one or two years to file a workers’ comp claim. 

To check how worker compensation insurance works in your state, it’s recommended to contact a trusted insurance company and speak to an insurance specialist who will give you all information you need. 

Who Needs Workers’ Compensation Insurance? 

Almost every industry can benefit from workers’ compensation insurance. Without this insurance, your company could face huge financial consequences in case an employee gets injured while working. Here are some industries that can benefit the most from having this policy:

  • Retail
  • Contractors
  • Food and beverage
  • Hospitality
  • Medical professions
  • Tech services
  • Therapeutic services
  • Small business
  • Printing and publishing

How Much Does Workers’ Compensation Cost?

Workers comp insurance costs about $1 for every $100 in payroll. However, there can be some variations depending on your workers’ classifications. 

In California, the cost of worker compensation insurance for every $100 in payroll is 40 cents for low-risk workers and $33.57 for high-risk jobs. In New York, on the other hand, the average is 7 cents per $100 payroll for low risk and $29.93 per $100 payroll for high-risk jobs. 

Related Reading: Pay-as-You-Go Workers’ Comp Insurance 101

How Is Workers’ Comp Calculated?

Workers’ compensation insurance premiums are calculated depending on how employees are classified and the rate assigned to each employee classification. The premium rate is expressed as dollars and cents per $100 dollars of payroll for each class code. Usually, it’s the National Council on Compensation Insurance (NCCI) that determines the classification rate and experience modification factor (MOD).

Why Do You Need Workers’ Compensation Insurance?

While workers’ compensation insurance is required in most states, it also helps businesses avoid the costs of employees’ medical expenses and lost wages due to workplace injuries or illnesses. Without this coverage, these expenses could cause your business irreparable financial harm. 

What are the Requirements for Workers’ Compensation Insurance?

Workers’ compensation insurance is regulated at the state level. Nearly every state requires employers to have worker compensation insurance and has its own requirements and penalties. Usually, the number of employees determines when a business needs workers’ compensation insurance. Also, most often, the policy is required as soon as you hire your first employee. 

Every single US state but Texas requires that businesses carry workers’ compensation insurance. 

Which Types of Employees are Generally Not Covered by Workers’ Compensation Programs?

The types of employees that are not covered by traditional workers’ compensation insurance are business owners, volunteers, federal employees, longshoremen, and independent contractors. 

Are Contractors and Volunteers Covered Under Workers’ Comp?

In most states, workers’ compensation insurance doesn’t cover volunteers as they are covered by their own health insurance. On the other hand, contractors can use this type of policy to cover their businesses. 

Does a Sole Proprietor Need Workers’ Compensation?

As a sole proprietor with no employees, you are not required to carry workers’ comp insurance. However, if you are injured while working, a workers’ compensation policy can help you pay for medical bills and replacement salaries while you recover. 

How East Insurance Group Can Help

Finding and buying the insurance that meets the unique needs of your business can be easy when you work with the experienced team at East Insurance Group. We understand that your business is one of a kind and needs specific protection.

When you work with East Insurance Group., you’ll receive:

  • Competitive quotes from the multiple insurance companies we represent
  • Straightforward advice from our business-savvy representatives, so you can confidently select and conveniently purchase the coverage your business needs at a price that makes sense for your balance sheet
  • Ongoing support from a company you trust to help make sure your coverage is up to date as your business changes

Are My Employees Covered When They Work or Travel in the Other States?

Your workers’ comp policy covers claims made only in the states named in the policy “Declarations.” If an employee is injured while working in another state, and that state has benefits more generous than the state(s) named in your policy, the employee could file a workers comp claim in the other state and it would not be covered by your policy. 

The solution is in the “Other States” section of the policy, which allows you to list states where employees might work from time to time so there will be coverage for claims filed in those states. The “Other States” portion of the policy cannot be used to cover claims in states where coverage must be obtained from the state workers’ compensation fund. “Other States” coverage is intended to provide protection only for incidental exposures in states where the employer does not operate as of the effective date of the policy. 

If you set up an operating entity in another state, notify your insurer, as this state should be added to the “Declarations” page of the policy.

Factors That Affect Your Premiums

Premiums for workers comp vary among the states. In states where benefits are more generous, premiums for workers comp insurance may be correspondingly greater. In most states, workers’ comp benefits continue even after the worker begins to collect Social Security and Medicare. 

However, benefits are only one part of the equation. In some states with low benefits and costs, premiums may be high due to the inefficiency of the system for awarding benefits. 

The generally increasing cost of medical care impacts premiums as well. Although states are working to make changes, for the most part, workers’ comp doesn’t have the types of cost control measures that have been applied to health insurance. 

Workers’ comp claimants do not have to pay deductibles. In many states, they may visit as many doctors and specialists as they like. There is generally no requirement for doctors to prescribe generic rather than brand-name drugs.

Assigned Risk Plans or Pools

An assigned risk plan or pool is a means of providing insurance for businesses that may not be able to get workers’ comp insurance in the private market. High-risk businesses, businesses with a history of many claims, and businesses in new industries without a previous industry claim history are the most likely to get insurance through the assigned risk plan. Typically, the employer or the representative applies to the plan. The application is then assigned to an insurance company that the state has designated to write the policy. Premiums in assigned risk pools often carry a surcharge over the regular premium rate.

What is a Second Injury Fund?

About half the states have second injury funds to encourage the hiring of workers who are partly disabled but still able to work. Employers would be reluctant to hire such workers due to the risk they could sustain an injury that would combine with the prior injury or condition to cause a disability. Without second injury funds, the new employer would be liable for the entire cost of the claim. When a partially disabled employee suffers a second injury, part of the cost of the second injury is apportioned to the second injury fund.

Some states discontinued their second injury funds following the passage of the Americans with Disabilities Act (ADA). Although the ADA requires employers to maintain confidentiality about employees’ disabilities, the confidentiality rule does not apply to communications with state workers’ compensation authorities or second injury funds.

How to Reduce Workers’ Comp Premiums 

  • Manage Your Risks
  • Take Advantage of Saving Opportunities
  • Be Sure Your Premium is Correctly Figured
  • Raise Your Deductibles
  • Try to Avoid Assigned Risk
  • Coordinate Disability Programs

Manage Your Risks

Most small companies do not believe they can afford to hire a risk manager. Nevertheless, someone in the company should have a continuing responsibility for loss control and the management of workers comp claims. This involves a variety of programs to keep workers safe, the medical management of claims, and early return to work for any injured workers. 

In some states, insurers must provide accident prevention services to employers. Even if not required to do so by law, the majority of workers comp insurers can help you improve safety. In some states, employers are required by law to set up safety committees and other programs to deal with unsafe conditions in the workplace. Even when not required by law, safety committees can be very effective at reducing accidents. 

Take Advantage of Savings Available in Your State 

Several states allow merit rating credits. Smaller businesses that typically pay $5,000 in premiums or less may be entitled to a credit of 5 to 15 percent if they have not had any lost-work-time claims during a designated period. In some states there are premium credits for drug- and alcohol-free workplace programs and safety programs. Some insurers may give you a discount if you hire a professional risk management firm to help you with your safety program.

Be Sure Your Premium Is Figured Correctly 

Make sure you have been placed in the right industry category. Check that the insurer’s payroll computation adjusts for overtime pay and allocates the payroll of different employees correctly.

Raise Your Deductibles 

A majority of states provide optional medical deductibles in workers comp insurance policies as a cost-saving measure. Deductibles tend to encourage greater safety consciousness on the part of the employer who must pay the deductible amount.

Try to Avoid Assigned Risk 

Cutting down on your claims is the best way to stay out of the state’s assigned risk plan, or insurer of last resort, which usually costs more. You may have been put at assigned risk without knowing it. Ask your representative to check on your status. 

If you have been put at assigned risk, find out from your state workers comp agency if rates are higher. If they are, make a concerted effort to get other insurance. Just because one representative is unable to find something better for you doesn’t necessarily mean that it doesn’t exist. 

Talk with other representatives, investigate group self-insurance programs that may be available in your state, and talk with other people in your industry and owners of other businesses of similar size and age and with a similar risk level.

Coordinate Disability Programs

This option isn’t available everywhere, but in some states, businesses are trying to bring costs under control through the coordination of workers’ compensation, health care, and disability benefit plans. The integration of workers’ compensation and other employee benefit programs is a broad concept that ranges from a simple marketing approach that promises savings from using the same insurer for both coverages to programs that offer a managed care approach to the management of all types of disability, regardless of whether they are work-related. 

Besides limiting overlapping programs and streamlining administration, proponents say the change to a broad approach addresses the increasing difficulty of distinguishing between work- and nonwork-related injuries and illnesses, such as injuries due to repetitive motion and mental stress claims. It improves productivity since nonwork-related disabilities are managed with the same focus of getting the employees back to work as work-related cases.

Can an Employee Who Had An Accident Sue Me?

Prior to the adoption of the workers’ compensation system in the first half of the twentieth century, injured workers sued their employers after workplace accidents. This was a long, cumbersome and costly process from which the worker might gain nothing if the court failed to find the employer totally responsible for the injury. With so few employers liable for workplace accidents, support for injured workers and the families of deceased workers was a societal problem. 

The workers’ compensation system was adopted to provide injured workers and their dependents timely compensation became regardless of who was at fault for a workplace accident. As part of the compromise that made the employer liable for work-related injury and disease costs regardless of fault, the employee surrendered the right to sue the employer for injuries. 

Injured workers accept workers’ comp payments and do not sue. This is why workers comp is referred to as the employee’s “exclusive remedy.” Nevertheless, there are certainly instances where “exclusive remedy” may not apply and injured workers may sue their employers. Conditions under which such suits are lawful vary among the states. In Florida, for example, injured employees may sue their employers in the following situations:

  • The employer commits an intentional and deliberate harmful act or engages in conduct that is certain to result in injury or death
  • An employee sexually harasses another employee
  • The employer violates the law prohibiting the firing, coercing or intimidating of an employee due to a workers comp claim
  • The employer has violated federal law regarding housing and transportation of migrant workers
  • The injury is excluded from coverage by workers compensation (such as a claim for psychological stress injury without any physical injury, a type of claim that is not compensable by workers comp in Florida)

Are you still confused about workers’ compensation insurance, or do you need some help getting a quote for your business? Contact us today and get all the information you need fast and for free! 

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