What Is Workers’ Compensation?
Workers’ compensation insurance, also known as workers’ comp or workman’s comp insurance, is a form of business insurance that provides benefits to employees who suffer work-related injuries or illnesses, regardless of fault (this is different from disability insurance which provides benefits to employees who suffer injuries or illnesses outside of work). It was created to:
- Provide employees with accurate and quick compensation for on-the-job injuries.
- Encourage employers to prioritize safe workplaces.
- Save employers and employees time and money from engaging in expensive lawsuits against one another for work injuries and illnesses.
What Does It Cover?
As a business owner, knowing the risks of injury is one thing, but understanding what workers’ comp covers is equally important. In principle, workers’ compensation benefits cover medical bills, ongoing care costs, portions of any lost wages the employee suffers from being unable to work, and in the worst-case scenarios, it will cover funeral costs and death benefits. How much is paid varies by state, but it is a set percentage of the employee’s average weekly salary, and it is not taxable.
Is It Required?
Nearly all states require businesses to purchase some form of workers’ compensation by law. There are a number of exceptions that vary by state that depend on the number of employees you have and the type of industry you are in. For example, in Wisconsin, workers’ comp is not required if you have less than 3 employees and have paid them less than $500 in combined gross wages in every calendar quarter.
There are also workers’ comp exemptions that allow you to avoid paying workers’ comp for specific types of workers. These exemptions generally revolve around independent contractors, family members, volunteers, and farm workers. Knowing your exemptions can help you determine if you are required to carry workers’ comp for your business or not. Fill out a contact form here to discuss with an MSIG insurance agent if your company requires it or not.
The Risks You Face Without It
There are often harsh legal penalties for businesses that are required to carry workers’ comp insurance but choose not to. These businesses can be fined significant amounts and even face closure by their state. In Minnesota, for example, the Department of Labor and Industry (DLI) can fine your business up to $1,000 per employee for each week the employee was not insured. This fine could be enough to close your business.
In addition to this, not carrying workers’ comp insurance leaves your business liable for paying large out-of-pocket costs for work-related injuries and illnesses suffered by your employees. If your business does not pay these claims, you could face employee civil lawsuits which can be even more expensive.
Check out our interactive graphic below to see some of the risks your business faces and how workers’ comp insurance can help mitigate them.
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Are you about to hire your next workers' compensation claim? In an effort to get a position filled quickly, you may take shortcuts that could cost you thousands of dollars.
Prospective employees should be required to complete a pre-hire physical. A copy of the intended job description can then be given to the medical provider with the physical requirements of the position. This helps to ensure only those capable of doing the job are hired and keeps other employees safe.
Oftentimes employees don’t understand the workers' compensation process and may be afraid to report a claim for fear of losing their job or impacting a daily count of injury-free days that are tied to an incentive program.
Educate employees on the workers' compensation system. During the hiring process, consider explaining how workers' compensation coverage protects your employee when an injury occurs. Your employees should understand that it is their responsibility to report an injury immediately and follow the company’s guidelines for seeking medical attention. Explain your return to work policy and have your employees sign an agreement stating they understand the process.
Your employee may become injured and you might be tempted to rely on someone else to communicate with them. As a result, your employee may be confused by the workers' compensation process and unsure where to turn.
You and your supervisors need to stay in constant communication with your employees. Your insurance broker can provide some coaching and guidance throughout the process. Above all, your employees should feel that you care about their injuries and that you will be involved in helping them recover. Your direct supervisors play a key role in this process and should be trained to effectively communicate with your employees throughout the injury.
When your employees become injured, they may need time to recover. As an employer, you may be tempted to rely solely on the workers' compensation insurance company and/or your employee’s medical provider to communicate throughout the process. If you do, the process can become unnecessarily prolonged.
As the employer, let your insurance company and your employee’s medical provider know that you have a return to work program in place. Ask the medical provider to refer to the job description that has been provided for the injured employee. As soon as the employee is medically cleared, offer a light duty position and ask them to report to work. If needed, your employee can continue to receive treatment while they continue to recover.
Statistically, your company’s Experience Modification Rate (EMR) has more than a 70% chance of being incorrect. Your EMR is a number used by insurance companies to gauge any past cost of injuries and future chances of risk. In addition, over 80% of payroll audits are done incorrectly. Both factors impact your workers' compensation coverage.
Trust your insurance advisor and have them assist and advocate during the annual payroll audit conducted by the insurance company. Your agent should also monitor all claims, but especially claims reserved over a $10,000 threshold. Larger claims should have a quarterly report prepared by your insurance agent to let you know the status of the claim. Your agent should work with your insurance company’s claims adjustor to close any claims as quickly as possible.
Claims can remain open longer than needed due to poor communication between you and your employee’s medical provider. As a result, you may be unaware that your employee is well enough to return to work on a modified basis.
Get to know the doctors that are helping your employee heal. Your insurance broker should foster this relationship by assisting you in the selection of the medical provider prior to a claim. Meet with the medical provider, interview them, tour their facilities, ask them to tour your location, and explain your return to work program. Job descriptions can be provided to the medical provider and an agreement of services can be achieved. Once a claim takes place, a clear line of communication should be established so you are kept aware of your employee’s status.
Sometimes employees are trained to do a job well, but are not trained to do their job safely. Many work-related injuries can be avoided by effective training.
Your insurance broker should be able to organize monthly training classes. Many insurance carriers offer training tools at no charge and your broker can help you utilize these tools to your advantage. For example, topics such as proper lifting techniques can be critical for many job functions. Also, using tools like payroll stuffers can be very effective.
Many employers are concerned about their next OSHA visit. Worried about citations and fines, employers see OSHA as the enemy. Sound familiar?
OSHA's On-site Consultation Program offers free and confidential safety and occupational health advice to small and medium-sized businesses in all states across the country, with priority given to high-hazard worksites. On-site Consultation services are separate from enforcement and do not result in penalties or citations. Consultants from state agencies or universities work with employers to identify workplace hazards, provide advice on compliance with OSHA standards, and assist in establishing injury and illness prevention programs.
Where Do I Purchase It?
Some states only provide a state compensation insurance fund (aka monopolistic state insurance fund) which businesses are required to purchase workers’ comp from (they cannot purchase from private insurance companies). These states are Ohio, Washington, North Dakota, and Wyoming.
Other states allow you to purchase from private insurance companies in what is known as a competitive state insurance fund. Here, businesses can go through insurance agents/companies to get workers’ comp insurance.
How Much Is Workers’ Comp Insurance?
Workers’ comp rates are based on several factors including:
- The work your employees do: state funds and private insurance companies use employee classification codes to associate the level of risk with each type of job an employee does. For example, if you own a construction company, an employee who builds houses all day will be assigned a different code than an employee who works at a desk since these jobs pose different levels of risk. In general, the higher the risk, the higher your premiums will be for your workers’ comp policy.
- Total annual payroll: for every $100 of payroll, you will pay a certain percentage of workers’ comp premium which is determined by the state you live in.
- The states your employees work in: since workers’ compensation requirements and regulations are set at the state level, your company may be forced to pay more in some states than others to acquire insurance.
- Claims history: state funds and private insurance companies factor your claims history into your premium calculation. In some states, an experience modification rating (EMR or Mod) is used to adjust a business’s premiums up or down depending on how its claims history compares to other businesses in the same industry category. For businesses that do not pay enough in workers’ comp premiums to qualify for EMR, some states permit merit rating which provides discounts on workers’ comp premiums for businesses that have not had any lost work time claims over a specified period.
As you can tell, there are many nuances to workers’ comp that can make finding the right coverage, and determining how much you need, difficult. Request a free workers’ comp insurance quote below today and one of our experienced MSIG commercial insurance agents will help walk you through your business’s options!
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