Have questions on workers’ compensation insurance? You’re in the right place.
This article talks about what you need to know about workers’ compensation insurance for your business.
Workers’ compensation is a form of business insurance that provides monetary benefits to employees who suffer injury or illnesses at work, or because of their work.
Specifically, workers’ compensation insurance helps pay for the cost of medical care, lost wages, rehabilitation costs, and more. It can also pay for the funeral costs or death benefits in case of a worker’s death.
Workers’ compensation pays workers who suffer job-related injuries, disability, or death.
Generally, accepting workers’ comp benefits also means that employees waive their right to sue their employer for negligence.
Here’s what happens:
By accepting workers’ comp, workers give up this “compensation bargain” in exchange for guaranteed compensation.
On the other hand, the employer consents to liability while avoiding a potentially greater large-scale negligence lawsuit.
In the event of an injury, illness, or death due to work-related activity, the worker files a complaint (compensation) against the company — just like other insurance claims. A hospital/doctor must ratify the claim and provide a report. The employer will compensate the employee based on the insurer’s advice.
In general, most workers’ compensation plans offer coverage of illness or medical fees related to work-acquired injuries or illnesses, ongoing care costs, and lost wages.
Also, if workers die from work-related injury or illness, workers’ compensation will pay for their funeral expenses and compensate their family members or dependents.
As a business, workers’ comp covers a business in three ways:
- It covers employee job-related illnesses and workplace injuries,
- It protects your business from employee job-related illness or injury lawsuits, and
- It keeps a business compliant with state regulations.
While the terms of workers’ compensation can differ by state, employers pay for workers’ compensation insurance in most states.
Generally, the employer pays a premium to either a private insurance company or a state-run insurance program for workers’ compensation insurance.
The premium for your workers’ comp is a percentage of the coverage that would be available for covering employees who would hurt themselves at work and need to seek medical treatment.
Your workers’ comp cost is a percentage of your payroll. Unlike health insurance, workers’ compensation insurance doesn’t have employee payroll deductions.
Workers’ compensation laws are policies at the federal and state levels designed to protect employees harmed, injured, disabled, or die while doing job-related duties.
The system of worker’s compensation laws is administered by the state and places mandatory employer contributions.
Federal government workers also have access to a similar program under the Department of Labor.
Workers’ compensation laws and requirements are regulated on the state level. Each state has its own workers’ compensation laws, requirements, and penalties.
Often, the laws require employers of a certain number of employees to give them some minimum workers’ compensation benefits.
Almost every state requires businesses to buy workers’ compensation insurance when they hire their first employee.
For example, Alabama workers’ compensation laws require employers with five or more employees to carry workers’ compensation insurance. The state also recommends workers’ comp for smaller businesses as it provides financial protection against work injuries.
Some states have penalties—such as a fine, jail time, or both —for not purchasing workers’ comp insurance.
In some states, you can purchase workers’ compensation insurance from an insurance company, while other states require employers to purchase it from a state fund.
Alabama business owners, for example, can purchase a workers’ comp policy from private insurance companies. On the other hand, North Dakota, Washington, Ohio, and Wyoming require businesses to purchase workers’ comp from their state funds.
Employers must make it clear to employees that workers’ compensation benefits are only payable for work-related injuries. This means there are no compensation benefits for self-inflicted injuries or injuries caused by substance abuse intoxication.
Work-related injuries covered by workers’ compensation can occur due to accidents caused by exposure to materials, work activities, and equipment.
Depending on the work environment, a workplace injury can be:
- Physical injury
- Psychological injury
Based on these types of injuries, there are different types of workers’ comp claims with specific eligibility criteria, such as:
- Medical treatment and rehabilitation expenses
- Permanent impairment
- Hearing impairment
- Psychological injury
- Work break and journey injuries
In addition, workers’ comp provides coverage for certain occupational diseases and illnesses as specified by state laws.
Note: Since individual states have different workers’ comp laws, identical injuries can receive different kinds of compensation benefits depending on your state.
There’s no standard workers’ compensation cost—workers’ comp cost depends on several factors unique to each state and business.
Generally, small businesses can pay an average of $40-47 a month or $500-560 per annum.
The costs of workers’ comp insurance is calculated based on different factors, including:
- Employees’ type of work
- Claims history
Based on these factors, the formula for calculating workers’ compensation premium is as follows:
- Premium = (Payroll/100) x Class Code Rate x Experience Rate Modification
Depending on your state and business, you may or may not be required to carry workers’ compensation because regulations and requirements vary significantly by state.
In many cases, differences range between the type of employment, number of employees, and type of worker engagement.
Some states don’t require small/micro businesses to purchase workers’ comp insurance. You may not need workers’ comp coverage in these states if you employ fewer than five people.
Alabama, for example, requires enterprises with at least five employees to carry workers’ compensation. However, most states require businesses with at least one employee to carry workers’ comp.
If you’re working with a business that needs to purchase workers’ comp insurance, please contact AIA to find out more about our exclusive underwriting and claims offerings available throughout the Southeast!