Despite the best intentions, accidents can happen. As a small business owner, you want to protect yourself—and your employees. That’s where workers’ compensation insurance comes in. Also known as workers’ comp, this is a mandatory type of insurance carried by many businesses. Workers’ compensation insurance covers medical costs and a portion of lost wages for an employee who becomes injured or ill on the job. Workers’ compensation insurance also protects companies from being sued by employees for workplace conditions that can cause an injury or illness.
Workers’ Compensation Insurance is required by law in almost every state. Workers’ comp laws are designed to ensure that employers pay for some part of the cost of injuries—or in some cases, of occupational diseases or even death—received by employees in the course of their work. To learn more about state-by-state comparisons, please talk to a customer service representative.
Almost all states that require workers’ comp insurance also have a list of exceptions. For example, many states allow employers to skip coverage for agricultural workers, volunteers, real estate professionals, part-time household domestic help, and casual employees, such as gardeners or maintenance workers hired to do occasional work.
Some exceptions are unique: For example, Maine exempts employers with six or fewer aquacultural laborers—fish, mollusk and crustacean farmers—if the employer has at least $100,000 in liability insurance for each full-time employee and $5,000 in medical payments coverage.
Workers’ compensation is a benefit system designed to help employees who have become injured or sick due to their work conditions or environment. Workers’ comp benefits generally include the following:
Premium costs are set by states per $100 of payroll annually and are based on the number of employees, how much they earn, the type of work they do, and how your workplace stacks up against similar businesses for safety.
For example, 2014 rates in Florida range from 21 cents per $100 of salary for a worker in an attorney’s office to $5.18 per $100 for a florist to $46.14 per $100 for a painter of metal buildings taller than two stories.
So, for an employee who makes $50,000 a year, you the business owner would pay a yearly premium of $105 for the office worker, $2,590 for the florist and $23,070 for the painter.
If you fail to get workers’ comp insurance as required by your state, you could get hit with stiff fines and possibly even jail time.
In New York, for example, a business owner who flouts the law for five or more employees could get hit with a fine as high as $50,000.
An employee can file a claim for workers’ compensation benefits as soon as they become injured on the job or develop an illness that is related to their work. In fact, delaying filing for workers’ comp benefits can pose a distinct disadvantage and potentially allow a workers’ compensation insurance carrier to deny an employee compensation benefits. At the least, a significant amount of time between when the injury allegedly occurred and when it is reported can throw up red flags for an insurance carrier who suspects that a benefit claim is not wholly legitimate.
Initiating the workers’ comp process involves the employee notifying you of his or her injury or work-related illness and, in most states, filing a formal workers’ comp claim. Employer notification of an injury or illness should be made promptly and should include pertinent details such as the date, time, and place of the injury, as well as how the injury occurred. A worker may also wish to provide a list of witnesses if the injury was due to a specific workplace accident. The process for filing a workers’ comp claim varies from state to state, but nearly always involves the employer, the injured employee, an insurance provider, and medical professionals.
In most jurisdictions, employers can meet their workers’ compensation obligations by purchasing an insurance policy from an insurance company. However, five states and two U.S. territories (North Dakota, Ohio, Puerto Rico, the U.S. Virgin Islands, Washington, West Virginia, and Wyoming) require employers to get coverage exclusively through state-operated funds. If you’re an employer doing business in any of these jurisdictions, you need to obtain coverage from the specified government-run fund. These are commonly called monopoly state funds. A business cannot meet its workers’ compensation obligations in these jurisdictions with private insurance.
Nevada was a monopoly state until recently, but now it’s shifted to a system of private insurance and the former state fund has morphed into a mutual insurance company. Thirteen other states also maintain a state fund, but the state funds compete with private insurance. In these states, an employer has the option (at least theoretically) to use either the state fund or private insurance. Those states that offer employers this option are Arizona, California, Colorado, Idaho, Maryland, Michigan, Minnesota, Montana, New York, Oklahoma, Oregon, Pennsylvania and Utah.
The closest thing there is to a uniform set of rules for premium computation are those established by the National Council on Compensation Insurance (NCCI, www.ncci.com). This organization creates policy forms and writes the rules for premium computation in the majority of states.
NCCI is what used to be called a “rating bureau.” Today, the organization tends to prefer the term “advisory organization,” although a lot of folks still use the older term. NCCI performs a number of important tasks for the workers’ compensation system in the states that use NCCI. It gathers the statistical data from insurance companies that are used to develop rates, for instance. It also creates the standardized policy forms that are approved by state insurance regulators. Perhaps most importantly, from the standpoint of those who buy workers’ compensation insurance, NCCI writes the manuals that govern how workers’ compensation insurance premiums are calculated.
For all of these reasons, you want someone on your side who can walk you through the complexities of workers’ compensation insurance, from start to finish. At WorkersCompInsurance.com, our team of experience experts is here to do just that.