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Workers Compensation Insurance

 

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Workers Compensation Insurance

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Workman’s Compensation Insurance

If you have a business with employees you need to have Workers’ Compensation Insurance. This type of coverage is also known as Workman’s Compensation or Workman’s comp. At FarmerBrown.com, we are an insurance broker that specializes in workers’ compensation insurance. With a history of providing comprehensive coverage for business, we have the ability to craft a unique policy that covers all your insurance needs.

By continuing to the sections below you will be given a comprehensive tutorial on Workers’ Compensation Insurance. There will be a number of tips that can save your business thousands of dollars in premiums. So let’s get going and learn the in and outs of obtaining Workman’s Compensation Insurance.

Below you will find tips that people shelled out a lot of cold hard cash to learn for free!!!

 

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What Is Workers’ Compensation Insurance?

Workers’ Compensation Insurance was implemented to compensate employees for medical expenses or lost wages as a result of work-related injuries or illnesses. It is governed by state laws. Each state has its own Workers’ Compensation Insurance commission that oversees the operation of the State plan.

woorkers compensation law suitIf you have employees and you do not have the coverage you run the risk of having to defend yourself from a lawsuit if an employee is injured on the job. This obviously can become a disaster if these costs are being paid directly out of your pocket. Furthermore, if they are successful with their lawsuit you will be responsible for paying any judgment as well. You might also find your business in legal trouble with the State. Most states have a legal requirement to have your employees covered with Workers’ Compensation Insurance.

Failure to have coverage can lead to massive fines and even criminal charges in extreme cases. If you have Workers’ Compensation Insurance covers all employees have their compensation claims covered for the time they are unable to work as well. This also provides coverage if they are permanently disabled.

Additional benefits you as an employer have by having Workers’ Compensation Insurance.

  • It suggests you are a quality employer.
  • You are able to attract talented employees.
  • Perceived as taking care of your employee’s needs, you are able to retain quality workers for the long-term. As we all are aware retaining and finding good employees is a difficult task.
warning singDue to its benefits and legal requirement, most employers obtain Workers’ Compensation Insurance to protect their business. However, this benefit is not available to every worker automatically.

 

Requirements needed for an employee to receive compensation coverage benefits are:

  • The employer must have Worker’s Compensation Insurance– Most States make it a requirement for all employers to have Worker’s Compensation coverage. Others are not required to do so. However, any employer can purchase Worker’s Compensation Insurance. If you do not have this coverage, the employee could file a claim against your business.
  • You must be an employee as defined by federal and state laws– An employee is someone hired exclusively by a company either on a full or part-time basis. Independent contractors do not qualify as employees. They need to have their own policy if they want coverage. PRO TIP: You need to collect Certificates of Insurance from all the independent contractors you hire showing they have their own Worker’s Compensation Insurance. If you fail to do this any money you paid will be added to your payroll. This can cause a large bill when you are completing your Workers’ Compensation audit. All workers’ comp policies are audited at least every year and usually quarterly. You will be required to provide your payroll records so the premium can be calculated.
  • All injuries must be work-related– For example, an employee falling of a roof at a client’s house would be covered. Injuries sustained during other activities that are not related to work are not eligible for Worker’s Compensation coverage.

An employee may suffer from long-term effects from exposure to hazardous materials. Claims can also be filed in such situations. Many employees do not understand how Workers’ Compensation Insurance works. In the beginning, they are not open to filing a claim. It is only after they talk to family and friends that they do realize they may have a claim.
Signing up for Workers’ Compensation Insurance to protect your employees’ welfare and your business is a complex process. You need to have a knowledgeable experienced agent to guide you through the process. This will ensure you get the proper coverage you need at the lowest cost.

How Does Workers’ Compensation Insurance Work?

Workers’ Compensation Insurance covers the costs of employee injuries and illnesses as a result of their employment. It also includes lost wages, rehabilitation, new job training along with many other things. It is required by law in most states for businesses with employees.

If an employee has injured on the job or contracts an illness as a result of their employment, Workers’ Compensation Insurance can pay for the worker’s medical expenses and rehabilitation costs. If the employee is unable to work because of their injury or illness, workers’ comp can also provide money in order to make up lost wages. Most policies also provide death benefits if an employee is killed while performing a job-related duty.

Workers’ Comp Insurance does not just only benefit employees. It has a number of benefits for employers. The policy will cover legal expenses and any judgment if an employee decides to sue for damages caused by an occupational injury, illness, or accident.

How Workers’ Compensation Insurance Claims Work


If an employee suffers a work-related injury or illness they should report it to their employer at once. All States have a time cut off for filing a claim. Each state reporting requirements are different so it is imperative that the claim is filed as soon as possible so that coverage can be obtained.


Steps to follow after a Workers Comp Claim, injury, or illness is reported:

  1. Healthcare Professional Visit– The injured employee should be seen by an approved healthcare professional. The injured employee should get medical attention immediately. Delaying treatment may cause claims for benefits to be denied. Make sure the healthcare professional knows that the injury is work-related so that the records can be properly notated.
  2. Start The Claim Process- It is a employers responsibility to  provide the appropriate forms, information about the claims process to the injured employee. This includes providing the contact details for the business’s Workers’ Compensation Insurance company. 
  3. File The Claim- The employees should get in contact with the employer’s insurance and notify them of the claim. They should provide the insurance company any State required paperwork and medical reports. As stated earlier time is of the essence in these matters as there are strict reporting deadlines.
  4. Getting Benefits- If the claim is approved the employee will start to get Workers’ Compensation Insurance benefits. These include medical bills, rehab costs and a percentage of their wages will be paid to the employee if their injury prevents them from working.
  5. Getting Back To Work- The injured employee’s doctor will determine when the employee can return to work. These recommendations might be for a reduced workload for a period of time. During this time employers should alter the work schedule of the injured employee, if necessary to allow the employee to return to work.
  6. Safety Training- Finally safety training should be provided to make sure the same type of accident does not happen again.

What Does Workers’ Compensation Insurance Cover?

Workers’ Compensation Insurance provides benefits to employees injured while performing duties required by their job. These benefits are provided no matter if the employee or employer was at fault in causing the injury. Workers’ Compensation Insurance coverage means that injured workers need not sue their employer to obtain compensation. Workers are generally eligible for benefits even if their own carelessness contributed to their injury.

For example, a construction worker could collect benefits for an injury they sustained falling off a ladder even though the injury occurred because they failed to use the proper safety measures before climbing the ladder.

State law determines how and what benefits are available to an injured worker.  Most State Workers’ Compensation laws typically provide the following types of benefits:

  • Medical Coverage: Includes doctor visits, hospital care, prescription medications, physical therapy, and any other medical treatments deemed necessary. 
  • Disability Income: Provides a replacement of income lost when workers are unable to work due to an on-the-job injury. The amount and duration of benefits depend on whether the disability is temporary or permanent, and partial or total. This is usually a percentage of wages and is generally around 2/3 of the injured workers’ weekly wages in most States.
  • Job Rehabilitation or Retraining: This provides support and training for workers who cannot return to their prior occupation to learn a new skill based on their current capabilities.
  • Death Benefits: If a worker is killed on the job their spouse and minor children are entitled to payment of a death benefit.


To put it all in a nutshell, all States give injured workers similar types of benefits, the amounts they pay varies greatly from State to State

What Injuries Are and Are Not Covered by Workers’ Compensation Insurance?

Workers’ Compensation Insurance covers injuries that result from an accident at work. There are certain situations where Workers’ Comp Insurance will not provide coverage. The biggest exception to coverage is from injuries that happen because an employee is intoxicated or using illegal drugs. Coverage may also be denied in situations involving:

  • Self-Inflicted Injuries: If an employee intentionally injures themselves at work, an employer is generally not liable for the injuries. By intentional it means that the injury was inflicted by the employee who had the mindset of causing injury to themselves. An example is, an employee cannot intentionally slip and fall or injure themselves and claim benefits.
  • injuries suffered while a worker was committing a serious crime.
  • injuries suffered while an employee was not on the job when the injury occurred.
  • injuries suffered when an employee’s conduct violated company policy. 

Who Needs To Have Worker’s Compensation Insurance?

BOPWorkers’ Compensation Insurance is governed by the State your business is located. Each state has its own requirements and penalties. Texas is the only state where Workers’ Compensation Insurance is optional for employers.

Typically, the number of employees determines when a business needs Workers’ Compensation Insurance. Most States require it when you hire your first employee. The penalties can be severe for not obtaining coverage if it is required. In California, New York and Pennsylvania you can be charged criminally for intentional non-compliance. All States have hefty fines and administrative sanctions if you are found to be in violation of Workers’ Compensation Insurance laws.

For example, Illinois has fines of $500 per day for noncompliance with a minimum fine of $10,000.

It is important to remember that the Workers’ Compensation Insurance does not only benefit your employees. It also protects you and your business from lawsuits and other types of legal actions. These situations can end up costing you thousands of dollars and might even put you out of business.

Workers’ Compensation Insurance is necessary for businesses with employees. So if you have employees do yourself a favor and get the proper Workman’s Comp Insurance coverage.

Does a Sole Proprietor Need Workers’ Compensation Insurance?

As a general rule sole proprietors with no employees are not required to purchase Workers’ Compensation Insurance. As a result, most sole proprietors do not carry coverage. The most important reason you may choose to have coverage is that if you are injured on the job, a sole proprietor Workers’ Comp Insurance policy can help pay for medical expenses and replacement wages while you recover.

If you are a sole proprietor is mostly likely that all your income comes from your work. If you are disabled or injured you will have no money coming in. Instead of disability insurance which can be expensive Workers’ Compensation Insurance maybe a better alternative. Remember however with Workers’ Comp you are only covered for work related injuries. With disability insurance it does not matter where the injury happened.

Are Volunteers Covered Under Workers’ Compensation Insurance?

If you own a business that has volunteers you may assume that if a volunteer gets hurt, Workers’ Compensation Insurance will pay for the medical expenses. The reality, however, is that since volunteers are not paid employees, they are not covered under workers’ comp. There are ways to obtain coverage and you need to discuss this with your agent. Call us today

PRO TIP: Another option to consider is having volunteers sign waivers and hold-harmless agreements so that they realize upfront that you are not providing coverage.

What If I Am Asked To Get Workers’ Compensation Insurance and I Have No Employees?

One of the most frequent requests we get is from small contractors that have no employees but a client is requesting a certificate of insurance showing they have Workers’ Compensation Insurance. You might think this is a ridiculous request why would I get and pay for insurance that offers me no coverage? Further is there even such a policy and what is the point of it.

Gohst policyThe answer to this question is yes. You need to purchase what is called either a Ghost Policy or an If Any Policy. You might be asking yourself this does not make any sense why would I buy Workers’ Compensation Insurance to cover employees that I do not have. The most common need for this type of coverage is when you are being hired by a general contractor. The GC will request that you provide them a certificate of insurance showing that you have general liability insurance, possibly commercial auto insurance, and always Workers’ Compensation Insurance. The reasoning behind this is relatively straight forward. When the GC’s Workers’ Compensation Insurance carrier does an audit, they will request that they provide certificates of insurance from any subcontractors they hired. If they can not provide these certificates showing the subcontractor had comp coverage, the amount paid to the subcontractor will be considered wages. As a result, these amounts will be included in the GC’s payroll and therefore the GC will be liable for an additional premium. As you know this can be quite a large sum.

PRO TIP: It is not just the big guys that need to make sure that any subcontractors hired to provide them with certificates showing they have Workers’ Comp Insurance. If you have Comp, an If Any or Ghost Policy and you paid money to a subcontractor when your policy is audited you will be requested to produce certificates from the subs showing they had coverage. If you do not those amounts will be treated as payroll and you will get a hefty bill. Finally, it is a best practice to get these certificates before you let any sub start working as it is usually very difficult to get them after the fact.

How Much Does a Ghost or If Any Workers’ Compensation Cost?

A Ghost Policy or If Any Policy  Workers’ Compensation Insurance Policy usually is around $1,000 per year. Again each state is different and this is just a ballpark quote. You can use this number if you are bidding on a job that is going to require you to get this type of policy. It is important to remember to pass these costs along to your customers. There is some good news when it comes to these types of policies. When they are audited and you show that you had no employees and supply certificates of insurance from any subcontractors you may have hired you may be entitled to a refund of a portion of the premium you initially paid.

 

Workers Compensation Insurance In Monopolistic States

If you operate a business in Ohio, Wyoming, Washington, and North Dakota you have to obtain Workers’ Compensation Insurance directly from the State. These states prohibit the sale of workers’ compensation insurance by private insurance companies. They are called the monopolistic states because they require employers to purchase workers’ compensation coverage from a government-operated insurance fund. 

Unlike other States, a monopolistic State fund is the sole source of workers’ compensation insurance in the state. It has no competitors because private insurance is not permitted. To put it simply they are the only game in town.

warning singIf your business employs workers in multiple States, one of which is a monopolistic state, the workers employed in the monopolistic State must be insured under a separate policy purchased from the State fund. They cannot be insured in under a multi-State workers compensation policy. 

What Does Workers’ Compensation Insurance cost

Workers’ Compensation Insurance is unlike other types of business insurance in that it is regulated differently by every State. It also means the cost of this coverage varies significantly from one state to another.

The main factors in determining the costs are:

  • Type of business: The National Council on Compensation Insurance (NCCI) oversees Worker’s Compensation issues in much of the country. The NCCI has developed a system of class codes to categorize the types of work people do. Currently, there are more than 700 codes. Each class code identifies a specific type of work. The higher risk a profession has, the more it costs to buy Worker’s Compensation for an employee in that profession. It stands to reason that it would cost more to cover a roofer than someone that strictly works in the office answering phones
  • Your Location: The cost for Worker’s Compensation Insurance varies greatly from State to State. For example, in Texas, you will pay about $13 per $100 of payroll. In California, you can pay as much or more than your payroll for coverage. So in California for example, if you had $100,000 in payroll your insurance cost would be around $100,000. As a general rule the more liberal the State the more you will pay.
  • Age of your business: New companies will generally have to go into their State’s assigned risk plan oftentimes called the Pool. The Assigned Risk Plan was formed by individual states to make sure employers can obtain Worker’s Compensation Insurance. As Worker’s Compensation Insurance is required by law in most states, insurance companies that write business in that State are required to accept a certain number of “Pool” companies. Assigned Risk Plan rates are generally higher than those for the same classification codes in the standard market. Assigned Risk Plans are generally the market of last resort for many States. Some states administer their own programs while NCCI, the National Council on Compensation Insurance administers others.
  • Safety Record or Loss History: Worker’s Compensation Insurance cost is also determined by your previous loss history. This is usually called your experience modification (EM). It is a numeric representation of your business’s claims history and safety record compared to other businesses in the same class code. The average company is assigned an EM of 1, if you have poor safety and claims your EM will be greater than 1. If you have a good safety and claims history your EM will be less than 1. This can greatly affect the amount you pay in premium. This may sound complicated but it is actually very simple as the examples I will show will help you understand how important this is.
    Example of how EM affect the Policy price

    I will use it as an example of 3 General contractors. Safety Sam GC with EM of .75, Average Joe GC with an EM of 1, and Risky Ralph GC with an EM of 1.25. They all have a payroll of $100,000. The state rate for coverage is $20 per $100 of payroll.
    Safety Sam GC will pay $15,000 ($100,[email protected]$20 per $100= $20,000 multiplied by EM of .75=$15,000).
    Average Joe GC will pay $20,000 ($100,[email protected]$20 per $100= $20,000 multiplied by EM of 1=$20,000).
    Risky Ralph GC will pay $25,000 ($100,[email protected]$20 per $100= $20,000 multiplied by EM of 1.25=$25,000).How EM afect Workers comp price chart

     

    All these policies will have the same coverage. So you can clearly see that a safety-conscious business will pay off in the end. With Risky Ralph GC paying $10,000 a year more than Safety Sam GC. If your payroll is large this can amount to huge differences.

Here are some examples of cost versus risk:

  • Cleric employee: low risk. Average around .28 per $100 worth of payroll for this employee.
  • Contractor: Artisan Contractor. Average around $12 per $100 worth of payroll for this employee.
  • Contractor High Risk. Such as Steel erectors. Average around $35 per $100 of payroll for this employee.Workers comp avg cost vs risk chart

PRO TIP: If your business employs workers in multiple States, one of which is a monopolistic state, the workers employed in the monopolistic State must be insured under a separate policy purchased from the State fund. They cannot be insured in under a multi-State workers compensation policy. 

How Much Is Workers’ Compensation Insurance For a Small Business?

The first question that every small business owner has when it comes to obtaining Workers’ Compensation Insurance is how much is it going to cost me? Workers’ Compensation Insurance rates are determined by the State, in most instances. In most businesses, there are different types of workers. If you run a roofing business you would probably have office personnel, salespeople/estimators, and workers that install the roofs. It is clear to see that the person answering the phone has a much less chance of injury on the job then one of the guys installing the roofs. As a result, you must make sure all your payroll is assigned to the correct classification.  Each worker classification, that is the type of work, is assigned a rate per $100 of payroll, and then the rate is a multiple of that. Here are some examples from the National Council on Compensation Insurance (NCCI) rating pages that show the significant differences between business classifications: 

Description Rate Per $100 Amount of Payroll Annual Cost
Office/Clerical $0.13 $40,000.00 $52.00
Painter $8.00 $50,000.00 $4,000.00
Roofer $25.00 $100,000.00 $25,000.00
Retail Store $1.30 $30,000.00 $390.00
Restaurant  $1.80 $60,000.00 $1,080.00

 

There is usually an additional annual per policy administration fee charged by the insurer. This amount is limited by State law with the amount charged determined by the insurance carrier issuing the policy.

How Do I Get Workman’s Comp Insurance?

If you are in one of the four monopolistic States you need to contact the State to obtain coverage. The links for these States a below:

If you are not in one of these states you need to determine whether or not you need to obtain Workers’ Compensation Insurance. The easiest way to do this is it contact the knowledgeable agents at FarmerBrown.com. They will listen to your needs and get you the coverage you need.  

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