Injuries and illnesses happen, and workers’ compensation (or workman’s comp) helps pay for lost wages, medical expenses, and rehabilitation costs. It also protects employers from lawsuits resulting from workplace injuries.
It’s a requirement in most states. Learn more about how workers’ comp works, and explore your options for purchasing a policy. Check out more at Cost-Effective Outsourcing Insurance Solutions.
Coverage
Workers’ compensation (or “workers comp” for short) helps employees injured on the job. It covers medical costs and partial lost wages. It also protects the employer against lawsuits resulting from workplace injuries or illnesses.
A few states require all employers to carry workers’ comp. Others allow businesses to purchase it from private insurers. In some states, all employers must buy coverage from a state-run insurer known as a state fund.
The type of injury and the number of claims impact the premium a business pays. In general, safe businesses pay less than riskier ones. But a system called experience rating allows insurers to modify the class rate for each policy based on an individual company’s loss history. The goal is to reward safer businesses with lower premiums and penalize unsafe ones with higher rates. Many workers’ comp policies include optional medical deductibles to help control costs. They also often cover travel to and from work-related appointments.
Limits
Like other liability policies, workers’ compensation insurance has limits — the maximum amount that the policy will pay per claim. The workers’ comp limit is split into two parts, which are typically listed as “employee benefits” and “employer liability.” Employers liability covers lawsuits filed against a business related to a worker’s compensation case. This is separate from Employment Practices Liability Insurance (EPLI), which addresses personnel-related claims such as wrongful termination, discrimination and harassment.
Most states require that a business carry workers’ compensation insurance for its employees. These policies protect businesses by providing monetary awards when an employee is injured in the course of their work. In exchange, employees give up the right to sue for pain-and-suffering damages unless the accident is found to be their fault. To help prevent such suits, insurers can bring in limits from the employers’ liability portion of the policy.
Requirements
Many states require employers to provide workers’ compensation insurance for employees. The specific requirements vary by state. In general, the insurance provides cash benefits and medical care for work-related injuries or illnesses. It also covers some lost wages and funeral costs. In some cases, the insurer pays for psychological counseling or physical therapy.
Employers may be required to post a notice of workers’ comp coverage in the workplace. In New York, for example, the law requires a written statement in English and Spanish that is visible to all employees. Also, the state requires that employers report work-related accidents promptly, often within ten days, so the insurer can begin processing claims.
Sole proprietors, partners and LLC members aren’t automatically included in workers’ comp, but can choose to cover themselves. Farm workers, domestic servants and some employers protected by federal labor laws (railroad or maritime employees) are exempt. In addition, some specialized businesses, such as barbers or cosmetologists and petroleum land professionals paid on commission, aren’t covered unless they obtain their own policies.
Premiums
While the cost of workers’ compensation insurance may seem expensive, the alternative can be devastating for a business. The financial burden of paying out-of-pocket medical expenses, loss wages and death benefits can quickly bankrupt a small business.
The premiums for workers’ compensation insurance are based on several factors, including the industry in which your business operates, your payroll and your claims history. Insurers also take into account state workers’ comp laws and the location of your business.
A system called experience rating allows the insurer to modify class rates based on your firm’s performance over time. This system rewards safe businesses with lower premiums and punishes unsafe firms with higher ones.
Be sure that your insurance agent is correctly classifying your employees. A misclassification can result in a costly audit and retroactive charges for unpaid claims. Also be sure that your insurer is properly accounting for overtime pay and allocating the payrolls of different employees.