When you open or run a business, you need to determine whether workers’ compensation coverage is required. It probably is!
How much is workers’ compensation insurance?
The cost of workers’ compensation varies depending on the number of employees, how risky your business is, and whether any of your employees were injured in the past. It used to be called “workman’s’ compensation and although the name changed, many people still refer to it as workman’s or workmens compensation.
Although the cost, called premiums, differs in each state they are calculated in basically the same way. The premium depends on the number of employees and cost of payroll. Each occupation is assigned a risk classification and each company is a little different. Risk is determined by the historical experience of two factors: the frequency of on-the-job injury and the severity of injury of the industry.
Read more: The Cost of Workers’ Compensation Insurance
Who pays for workers compensation?
When you purchase workers’ compensation insurance for your business, it is important to remember your employees won’t be contributing to the premiums as they do with social security and unemployment. By law, employers are required to pay the expense of workers compensation premiums, because workers comp is a type of commercial insurance coverage for business entities.
Where do you buy workers compensation insurance?
- Insurance Carriers: In many states, you can purchase workers’ compensation insurance through an insurance carrier (we’ll save the discussion of self-insurance for another time). The work comp insurance carrier provides the coverage you need to comply with the work comp laws of each state. A licensed agent or broker can sell workers’ comp insurance for those providers.
- Monopolistic States: In several states, (North Dakota, Ohio, Washington, Wyoming) you are required to purchase your work comp coverage through a state operated fund. A work comp insurance company cannot provide coverage in these states.
- Hybrid States: In other states, you have the choice of buying your work comp insurance either through an insurance company or a state operated fund competing with the insurance companies in the private market.
- Texas: Texas has a unique law allowing companies to opt out of carrying workers’ compensation insurance with an insurance carrier. Your company becomes liable for paying all the required comp benefits. This might be a good option for your company until you have a catastrophic injury claim, then you will wish you had transferred the risk to a workers’ comp insurance carrier. It’s like going without fire insurance on your home.
Who is covered?
- The quick answer is every employee. However, that statement is not totally true. In some states if you are a sole proprietor or a partner, you can exclude yourself from coverage, but you still have to purchase work comp insurance for any employees who are not owners of the business.
- A few states allow you to exclude commissioned sales people from your work comp insurance program, but before doing so, consider the potential cost of resolving their work related injury claims in the tort system of their states which could cost a business owner much more. If this were to happen, you would also have to pay for your own defense attorneys. Read more: Who is Covered by Workers’ Compensation Insurance
Are contractors and subcontractors covered?
Many business owners or managers make the mistake of thinking they are covered for workers’ compensation when they list of all their employees with their work comp carrier. If it was only that simple. Most states require you to extend work comp coverage to all contractors and subcontractors who fail to provide their own work comp coverage. For example, a consultant hired as a contractor to assist you with your business operation may not have his own work comp insurance. It is best to require any contractors or subcontractors working at one of your business locations to provide proof of insurance coverage for workers’ compensation.
What if you operate or do business in more than one state?
If you are an employer domiciled in one state, but frequently or normally do work in other states including the monopolistic states (Ohio, Washington, North Dakota, and Wyoming – where the state government sells workers compensation insurance), the purchasing of workers compensation insurance can be complicated and confusing.
Must you maintain a safe workplace?
Whether or not you purchase workers’ comp insurance, it will be your responsibility to have a safe workplace. Safe workplaces reduce the cost of your insurance premiums because there will be fewer injuries in your workplace. You should also have an injury response plan in place so, in the event an accident or injury occurs, employees and supervisors know what to do.
Read more: Must an Employer Maintain a Safe Workplace?
What happens after you buy work comp insurance?
Keep in mind that when you buy workers’ comp coverage, you can be mistakenly overcharged. That is why you should get annual reviews, called premium audits, to ensure your employees are classified correctly, and your business is being charged the correct amount for each employee. If rates ever go up unexpectedly, it is up to you to look into the situation and get an explanation as soon as possible. In some cases, the insurance company has the right to review your payroll and, if it is substantially higher than they were told, they can charge you a higher premium in arrears.