Who Needs Workers Compensation Insurance

Even safe workplaces have accidents and that’s what workers’ compensation insurance is for. Sole proprietors, partnerships, and businesses with only a few employees typically can but aren’t required to purchase coverage. Each state has its own workers’ compensation rules, but here’s some general information you should know.

What Is Workers Compensation Insurance?

Regardless of who’s at fault, workers comp benefits provide injured workers with all medically necessary and appropriate treatment, income compensation (based on the extent and duration of the disability) while they can’t work, and death benefits if a worker is killed. It also usually protects employers from lawsuits by injured workers. 

• Employees – Commission-only workers, owners’ immediate family members, independent contractors, and uninsured contractors or subcontractors or employees of an uninsured subcontractor may not be considered employees.
• Claims – A workers comp injury that happens at work or anywhere while working is covered. Accidents, workplace violence, terrorist attacks, natural disasters, and some illnesses and occupational diseases are covered. 
• Policy – Workers comp insurance isn’t part of your business owner’s policy and must be purchased from a state fund or insurer. A policy usually consists of workers’ compensation and employers’ liability.

• Workers Compensation – The insurer pays the state-required amounts of compensation with no limit and accepts whatever you are obligated to pay.
• Employers’ Liability – Provides limited coverage if you’re sued for work-related bodily injury or illness that isn’t part of state statutory benefits. It also covers when an injured worker files suit against someone other than you, and that third party tries to hold you responsible. If the spouse of an injured worker sues you for loss of consortium, this also applies.

• Obligations – You must keep records and make a report to the state workers’ compensation board and your insurer within a certain amount of time. Insurers may help you file a first notice of injury with the state to begin the claim process, and get medical treatment faster.
• Education – Inform employees of how reporting requirements, medical attention, accommodation, etc., work. Include information in employee handbooks and orientation, post it, and hold regular safety reviews. 

• Other States – Allows you to list states where employees might occasionally work so there will be coverage for claims filed there (except where coverage must be obtained from the state workers’ compensation fund). 
• Assigned Risk Plans/Pools – Provides insurance for businesses that may not be able to get workers comp insurance in the private market. Premiums often carry a surcharge over the regular premium rate.
• Second Injury Fund – Encourages the hiring of workers who are partly disabled but still able to work. When a partially disabled employee suffers a second injury, part of the cost is covered by this fund. 
• Liability – If an employee protected by statute is injured or killed while working for you, you may be legally liable, no matter if insurance is required or how many employees you have. 

What Does It Cost?

Workers’ comp costs include premiums, payments, and the costs of handling claims and making reports. Premiums are based on your industry classification code, payroll, type of work, location, and claim frequency. Here are some ways to reduce premiums.

• Safety – Put someone in charge of safety programs, claim management, and injured employees returning to work. Also, set up safety committees and other programs to deal with unsafe conditions. A written injury and illness prevention program can also help reduce accidents.
• Savings – Businesses with premiums of $5,000 or less could receive a merit rating credit if they haven’t had any lost-work-time claims for a certain amount of time. Credits for safety and drug/alcohol-free workplace programs and discounts for hiring a risk management company may also be available.
• Premiums – Make sure you’re in the right industry category and that the insurer’s payroll computation adjusts for overtime pay and allocates the payroll of different employees correctly.
• Deductibles – Look for optional medical deductibles as a way to save money.
• Assigned Risk – Cut down on claims to stay out of the assigned risk plan. Find out if you were put into the plan without knowing it. If you’re in assigned risk, find out what the rates are and try to get other coverage at lower rates. Look into group self-insurance, talk with other agents, people in your industry, and owners of businesses with similar size, age, and risk level.

• Integration – Combining with other employee benefit programs may provide savings by using the same insurer or offering a managed care approach to all disabilities, work-related or not. This approach also eliminates having to distinguish between work- and nonwork-related situations. 
• Experience Rating – For premiums above a certain amount, this rating adjusts them depending on your claims history relative to other companies in your industry. 

To learn more about workers’ compensation you can visit The Division of Workers’ Compensation (DWC) website or get in touch with us.