Did you cut your hand at work and not report it? It might seem like a little thing. But if infection sets in later — causing you to lose work time or even your hand — it’ll quickly become a big thing with lost wages and medical bills. So now is the time to ask: What is workers’ compensation insurance?
You’ve heard the term workers’ comp, short for workers’ compensation, but have you taken the time to learn what it means? Whether you’re an employer or an employee, this article will give you the basics of workers’ compensation insurance.
What Is Workers’ Compensation?
Workers’ compensation insurance is coverage regulatory bodies require businesses to carry to provide benefits if workers are injured or become ill while working or because of their job duties. A death benefit can also be paid to a family member if a worker dies on the job or because of their job. |
If your claim is accepted, you can receive cash while out of work and have your medical expenses covered. The employer benefits because you must waive your right to sue otherwise when you accept the claim.
The goal is to treat employers and employees fairly. You and your company could suffer financial losses when employees are injured or fall ill at work. Also, both your company and you are giving up something.
If you get hurt on the job, workers' compensation is often the main way to get help. It's called the "exclusive remedy" because it protects employers from lawsuits. In return, it covers things like medical bills, missed work, and other costs related to the injury. The employee does not need to prove fault or negligence to get these benefits.
Workers’ comp doesn’t look to place fault. It limits the liability for employers and compensates workers who might get injured or become ill without placing blame. However, intoxication and self-harm are exceptions and could affect your eligibility.
That raises the point of what is not covered by workers’ compensation insurance; in most cases, commuting to and from work, voluntary recreational activities associated with work, and horseplay and fighting are not covered.
How Does Workers’ Compensation Insurance Work?
The extent of coverage and requirements vary from state to state. Each state that mandates coverage sets its own rules. There is no federal requirement except for companies working on federal contracts (this is known as Defense Base Act coverage).
You should check with your state workers’ compensation board to find out how it is handled in your state. However, there are general rules that apply to workers’ comp claims. Go back to the hypothetical of cutting your hand at work.
Typical Claims Reporting Process:
Report the injury immediately to your employer
Seek medical attention as soon as possible
Follow the medical orders as prescribed
Your employer must report the injury directly to its insurer
Follow up with your employer to ensure your injury was reported
Severe injuries must be reported to the Occupational Safety and Health Administration
If the insurer disputes your claim, you can elect to sue your company for liability/negligence
These are general guidelines for handling workers’ comp claims. Each state has different requirements and ways of handling workers’ compensation claims, so check with the state where you work.
What Businesses Should Have Workers’ Compensation Insurance?
Workers’ compensation insurance is for all businesses with employees on payroll. It can help protect your employees and your business. Most states require companies with one or more employees to carry workers’ comp. In Texas, employers are not required to buy workers’ compensation insurance. It’s an option, except for construction companies working on government contracts.
Types of Workers’ Compensation Insurance
Workers’ compensation insurance varies from state to state. However, there are two types of coverage to consider:
Coverage A: Workers’ Compensation
Coverage B: Employer's Liability
If your claim is approved and you accept it, you usually waive your right to sue. However, some claims are denied and employees sue, and the regulations and rules on workers’ compensation are evolving.
Monopolistic States
OH, ND, WA & WY are known as “monopolistic states." If you have employees in these states, you will have to buy your work comp coverage from the State Work Comp Funds. While these insurance companies provide Coverage A (Workers’ Compensation), they do not provide Coverage B (Employer’s Liability). This leaves most employers with a coverage gap that your general liability coverage can fill through the addition of “stop-gap” coverage to pick up Coverage B in monopolistic states.
How Much Does Workers’ Compensation Insurance Cost?
Your industry, payroll, prior claims, and state law help determine the premium you will pay for workers’ compensation insurance. The national average premium costs about $45 per month, or $540 per year, with nearly a quarter of small businesses paying less than that. Rates vary from $.15 to $10 per $100 in payroll spending on the class codes.
Where to Find Workers’ Compensation Insurance
You typically can purchase workers’ compensation insurance through an agent/broker who can access private insurers. You will need to acquire coverage in monopolistic states directly from the state funds. Most states also allow certain companies to self-insure if they go through the process of becoming “qualified self-insured.”
Here are four steps to buying the right insurance for your business:
Review the states you have payroll in
Determine if you need to access any state funds or if you can write all states on one program
Evaluate carrier rates by state
Build a safety culture to lower risks with an emphasis on return to work
If you’re still asking, “What is workers’ compensation insurance?” you should reach out to Better Insurance. Not only can Better Insurance get you better rates with bigger limits, but we also provide you with ongoing risk consulting for Work Comp and all other lines of P&C coverage.
