It’s your job to keep employees safe at work. However, accidents happen. Sometimes employees get injured or become ill on the job, and that’s why we have Workers Compensation Insurance.
This insurance covers medical costs and lost wages, as well as things like rehabilitation or physical therapy. It’s mandatory in many states, and highly recommended for all employers.
Read on to find out more about this type of coverage and what your business should look for in a policy.
Often called “Workman’s Comp,” this insurance has been available in the U.S. since 1949. This type of insurance provides wage replacement and medical benefits to employees who are injured at work. In exchange, employees relinquish their right to sue their employer for negligence. Therefore, Workers Compensation Insurance protects employers from costly lawsuits, while also assuring employees that they are guaranteed some coverage in case of illness or injury on the job.
Workers Compensation Insurance is mandatory in most U.S. states, and laws requiring that businesses hold these policies are intended to eliminate the need for litigation. Employees who are injured or become disabled at work will not need to cover payment of their own medical bills, and will receive monetary compensation to cover loss of wages. This compensation might cover a portion of wages while they are out recovering from an injury, or it might last longer in situations where employees have suffered permanent physical damage.
Many states, however, offer an exception for businesses with a very small number of employees. For example, if you have three or less employees in Alabama, your business is not required to carry it. However, if you are based in Colorado, all public and private employers must provide coverage for their employees if one or more full or part-time persons are employed. In Illinois, the law is even more strictly worded: Workers Compensation Insurance is required in “every work situation. Additionally in some states, such as NY, failure to provide workers compensation results in strict and heavy fines applied by the state.
Some other common exemptions from mandated insurance are for agricultural employees, corporations or exempted members of limited liability companies or LLCs.
Getting into details...
If an accident occurs on the job and an employee is injured, insurance will cover related medical expenses and a portion of lost wages. Example: Traffic accidents are some of the most common claims. For example, an employee could be injured in a car accident while using their vehicle for work. (Note: accidents that happen while an employee is commuting to or from work are not covered).
In some industries, employees are at risk of developing certain occupational hazards. Insurance should cover medical expenses, as well as a portion of wages while the employee is out of work, as long as there is a clear connection between the job and the illness.
Claims are common for injuries due to repetitive physical motions. Insurance will cover any rehabilitation or therapy an employee needs, as well as pay a portion of wages while the employee is taking time off to recover. Example: The most common form of repetitive stress injury is carpal tunnel syndrome, affecting all types of office workers.
An employee is injured in an accident to the point where they won’t be able to return to work due to a disability. This insurance will cover their medical bills, as well as a portion of their wages moving forward. Example: an employee is injured in a car accident while on the job and loses the use of one leg. They are unable to perform their job anymore due to a disability.
This type of insurance comes in handy if…
The real question here is: Do small business owners need Workers Compensation for themselves?
If you have employees, you not only want to have Workers Compensation to protect your employees to be a good business owner, but also because it is a requirement in most states. If your employees are injured or become ill because of working and are unable to work, Workers Compensation will pay for their lost wages and medical bills. Sometimes, even if you don’t have employees you will need to purchase Workers Compensation insurance due to a contract or written agreement with another business.
If you do carry Workers Compensation insurance you may wonder if you are able to exclude yourself. Often, when a business owner has to pay for health insurance it is a huge expense, so their business insurance is the next place to look. The good news is that you can exclude yourself from Workers Compensation coverage. Just make sure your health insurance limits are adequate.
Be sure to understand what your state laws are. In most states, executive officers of a business are automatically included in Workers Compensation. If this is the case, you will need to request to be excluded by signing a form and providing some other information like salary and social security number. Some states may even require that the exclusion request be reviewed and approved by them. If you do wish to be excluded it is a good idea to check with an advisor before the policy is bound.
There is no universal limit to the amount that can be paid to an injured employee. Instead, the amount is determined by the Workers Compensation Board in each state. The amount is usually determined by the employee’s salary and the severity of their injury or condition. For example, in the state of New York, an employee’s Workers Compensation Benefit would be calculated as two-thirds of their average weekly wage, subject to a state-determined maximum. That is in addition to medical bill payments.
However, employer liability coverage in Workers Compensation cases does have a limit. Basic policy limits required by law range from $100,000 per employee for bodily injury to $500,000. Since it’s easy to see how one or two big claims could exhaust the limits of liability, employers are frequently encouraged to purchase increased liability coverage for a nominal cost. For example, a 2 or 3 percent premium increase could boost coverage from $500,000 to $1 million.
Workers Compensation Insurance covers injuries that are sustained in the actual workplace, or anywhere the employee is acting in the “course and scope” of employment. In addition to accidents, many of these policies cover injuries or disabilities employees may sustain from events that occur while they are at work.
Depending on state statutes, this insurance will also cover certain illnesses and occupational diseases that employees suffer from due to their employment. In some cases, workers will be compensated for the effects of psychological stress caused by their job.
The legal definition of a work-related injury has expanded significantly in recent years. For example, employees who have been injured while playing on company-sponsored sports teams have been able to collect benefits.
This type of insurance covers your employees when one of them becomes ill or injured on the job, regardless of who’s fault it was. Employees can receive reimbursement for medical costs, as well as collect a portion of their wages while out of work due to a work-related injury or illness. This coverage is important if an employee is injured in a work-related accident, as they won’t have to pay for their medical expenses out of their own pocket.
In addition to an employee’s medical bills and wage compensation, Workers Compensation Insurance almost always provides death benefits to the dependents of employees who are killed in work-related accidents or illnesses. In some states, laws also limit the amount an injured employee can recover from an employer, and eliminate the liability of co-workers in most accidents, protecting both employers and fellow workers.
Just like most insurance policies, the cost will vary based on the nature of your business, its size, its risk factors and its location.
Typically, a small business owner with a few employees can expect to pay around $2,000 to $3,000 in Workers Compensation Insurance premiums annually. As an employers payroll increases, premiums will also increase.
It will naturally be more expensive to insure employees working on a particularly dangerous job where claims are frequent, such as construction. However, discounts are still available for businesses that implement work safety programs and enforce a drug free workplace. Premiums can also be reduced by purchasing a plan with a high deductible.
It’s highly recommended that you research the insurance laws in your state to find out of if you need coverage, and the requirements. As a small business owner, knowing the insurance laws of your state is essential to protecting yourself and your employees.
However, even if you aren’t mandated by law to carry a policy, it’s always better to be safe than sorry. Purchasing a policy now will save you headaches and even higher costs down the road. Plus, it’s the right thing to do to ensure your employees are taken care of if something happens to them on the job.
EPLI is a liability insurance that covers wrongful acts, such as wrongful termination, discrimination, sexual harassment and retaliation. This insurance may also protect your business from other employee-related claims, such as deprivation of a career opportunity, defamation, invasion of privacy, failure to promote, and negligent evaluation.
This insurance protects goods in transit on land, as well as the property of others that is on your premises or being transported from your premises. An Inland Marine policy is crucial if your business ships goods of any kind on land.
This insurance covers a business should they need to recall one of their products. Product Recall Insurance will cover the cost of getting a defective product back under the control of the manufacturer or merchandiser that would be held responsible for bodily injury or property damage due to the existence of the product.
This insurance will provide you with coverage if you are throwing a special event. Special Events Insurance will cover claims of bodily injury, property damage and provides coverage for any contractors you hire.
While most work-related injuries are covered by Workers Compensation, there are some cases where they won’t be. These include if the employee is intoxicated, hurts themselves or a co-worker on purpose, if the employee is not on the job, and if any company policies were being violated at the time of the incident.
As long as the contractors you are hiring are not actual employees, they are not eligible for Workers Compensation from you. They should have their own coverage and furnish proof of that to you. The insurance company may ask that you provide proof to them as well, and if you cannot, you may be charged for the contractor anyway so good documentation is very important. If you're confused, consult with a CoverWallet advisor.
Payroll, type of operations, and past claims history are going to be the main factors that influence your premiums. Your claims will generate an experience modification factor and this can greatly impact how much you pay. The jobs your employees are performing impact the rate as well, based on the risk of the job.
Using an attorney, the employee that is injured may elect to have a lump-sum payment rather than benefits over a period of time. They normally take this route if there are past-due medical bills, attorney fees they need to pay, or future medical costs they know are coming.
Class codes are determined based on the job duties being performed by the employee, such as a concrete worker or clerical office employee. This is what will determine the rate per $100 of payroll that you will have to pay for the Workers Compensation coverage.
Loss cost is how an insurance company determines the rates for each class code. Loss cost is basically the number of medical losses for each claim.
Workers Compensation Insurance laws and requirements vary state by state. We’re expert in small business insurance, that’s why we decided to create these guides and help you make the best choice. Click on your state below and discover all the information you need:
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