What is Workers’ Compensation?
While no business owner wants to see a worker injured, accidents happen all the time. Workers’ Compensation insurance is a policy that protects both employees and employers when there is a work-related injury or illness. One part of the policy provides financial protection to workers who are injured, become ill, or are killed as a result of a work-related event. The other part protects the employer because employees cannot bring lawsuits against their employer for medical expenses if a workers’ Compensation policy is in force. This is referred to as an exclusive remedy.
What Worker’s Compensation Insurance Is Not
Workers Compensation Insurance is not health insurance. Workers Comp is designed specifically for injuries sustained on the job.
What does Workers’ Compensation Cover?
Workers’ Compensation insurance is a packaged policy that provides several different coverage to provide financial protection for work-related accidents and illnesses.
- Medical Expenses: Workers’ Compensation will pay for expenses due to work-related injuries and illnesses such as ER visits, ambulance transportation, diagnostic testing, and bills from health practitioners and hospitals. There is no requirement to provide who is at-fault, and, as long as the injury or illness is work-related, coverage is provided.
- Wage Loss: If an employee’s work-related injury or illness prevents them from working, workers’ compensation insurance will reimburse the employee for wages lost, depending on the state in which they work. Policies in most states will pay up to 66% of the usual weekly earnings, which is typically on a tax-free basis. Some states provide for a “Loss of Earning Power” benefit, which pays for a partial compensation if an employee returns to work on a limited basis.
- Funeral Expense and Death Benefits: When a work-related injury or illness results in the death of an employee, workers’ compensation insurance will help pay the funeral expenses and, in some states, they will pay death benefits to the surviving family members.
- Employer’s Liability: In states that do not have an exclusive remedy rule for workers’ compensation insurance, your workers’ compensation policy will help pay for defense costs, settlement expenses, and judgments awarded by the court.
How Much Does Workers’ Compensation Cost?
In almost every state, workers’ compensation rates are regulated by the state. Typically, each worker classification, i.e., the type of job, is assigned a rate per $100 of payroll, and then the rate is a multiple of that.
Workers’ Compensation premiums vary depending on the size of your payroll, the type of work your employees do, and the state where you live. A small business might only pay around $2,000 per year for workers compensation coverage, while a larger company with many employees could pay upwards of $100,000 per year. Another factor that greatly impacts the cost of Workers’ Compensation insurance is previous claims history. If your business is focused on a sector that is known to be dangerous, such as machine work or logging, you’ll likely pay higher premiums than a business that offers simple office work, like an accounting firm.
Workers’ Compensation provides coverage for all full-time and part-time employees and may cover owners and officers depending on the application and the owners inclusion or exclusion on the policy. In many states, a policy will cover uninsured subcontractors and 1099 employees if they do not have other coverage in place. As a general rule, employers with at least one employee should have coverage.
What are Workers Comp Audits and Why do They Have Them?
Insurance carriers may conduct an annual audit for any policy after it expires. The purpose behind an audit is to make sure you paid the right amount of premium so that you don’t pay too much or too little. Since traditional plans were based on estimated payroll, most audits were done to determine actual payroll over the policy period. Auditors will also ask about subcontractors and verify correct classification codes. Audit can be done over the phone, via mail, or in person depending on the carriers’ preference.
Can Business Owners Exclude Themselves from Coverage?
In most states, owners and officers have the ability to choose whether or not they want to be excluded or included in coverage. There are some restrictions for corporate officers in several states.
How Can You Get Lower Workers’ Compensation Insurance Rates?
There are several steps you can take to minimize the premiums you pay for Workers’ Compensation insurance. First, take steps to manage your risks. Make every effort to keep the workplace environment safe for your employees to minimize accident risks. Discounts on Workers’ Compensation will hinge largely on experience modifiers. This means that your insurance provider will offer a customized premium based on previous losses. This is yet another reason to make a safe workplace a priority, because fewer accidents and losses can translate into future savings on your workers comp insurance rate.