Workers Compensation: A Complete Guide for Business Owners
Odds are if you own a company and have employees you need to buy workers compensation insurance as a requirement of doing business. The purpose of workers compensation is to help employees of businesses who get hurt while working on the job. These types of insurance policies are designed so that employees who are injured while performing their jobs will have the resources needed to deal with their injuries and get back to work when they are able to do so. A workers compensation policy also provides benefits to the dependents of an employee if that person is killed on the job.
There are employees that are not covered by workers compensation insurance. This depends on each state but many exclude occupations like domestic employees (maids, butlers, nannies, etc.), farm workers, and seasonal workers.
The only state that doesn’t require you to buy this insurance coverage at all is Texas with certain exceptions. If you have three or fewer employees you don’t have to buy this coverage in Florida or South Carolina. The rule is four or fewer employees in Tennessee and Missouri are exempt from being required to buy workers compensation. The rule in Kansas is that a company with a gross annual payroll of less than $20,000 does not have to buy workers compensation insurance. Even in these states they might require businesses in certain industries, such as construction, buy workers compensation.
Even if you do business in a state where workers compensation insurance is not required it’s still a good idea to buy it as it protects the business from big lawsuits as will be covered later on. Even if a business is considered very safe things do happen that might result in a big lawsuit. It is unlikely the average office worker will be injured on the job, after all, but if a heavy filing cabinet tips and falls on them the resulting lawsuit for the business can be catastrophic.
The Main Components of Workers Compensation
There are four main components to workers compensation. The first is that it replaces the injured workers' income while they are unable to work through wage replacement benefits and/or ongoing disability benefits. The second is that it pays for the medical treatments they need as a result of the injury they suffered. Third, it provides for vocational rehabilitation in cases where they are no longer able to continue in the same line of work due to their injury and need to pursue a new profession. Fourth if a worker is killed workers compensation works like a life insurance policy as it pays money to their dependents.
How much an employee receives while on workers compensation depends on the state but it will be less than 100% of their salary. It could be half to three-quarters of their regular pay in general. In most states it is two-thirds of salary that is paid each week. Payments for retraining, medical care, rehabilitation, and other benefits will be paid on top of this amount.
Not all injuries covered by malpractice insurance need be due to a sudden accident. Carpal tunnel syndrome from repetitive actions can be covered under workers compensation or chronic back problems from years of lifting heavy items. If an illness or disease is a direct result of what someone does for a living that can also be covered under workers compensation.
Unlike in the judicial system, workers compensation does not pay for things like pain and suffering or punitive damages. It just pays for the employee to get well, receive job training, or otherwise get them back to work in their current occupation or a new one.
What Workers Give Up For Workers Compensation
One of the benefits to employers about workers compensation is that employees under workers compensation have to mandatorily give up their right to sue the business for any injuries they suffer. This is known as “the compensation bargain” as they give up the right to file a lawsuit for employer negligence on the one hand but have a guaranteed system in place to help them handle the repercussions of injuries if they do happen. Basically, workers compensation is a replacement of the personal injury litigation process.
Workers compensation helps businesses as it removes the possibility of their being sued if an employee is injured on the job whether due to their own negligence or the company’s. Eliminated is the possibility of facing a potentially ruinous lawsuit that has large damage awards. Even after a workers compensation claim, the employer will continue to pay their regular contributions to the workers compensation plan, although their rates could go up if the state decides it was the company’s negligence that caused the injury or death.
There are some exceptions to these rules about workers compensation. The first would be if the business intentionally caused injury to an employee. Another exception is if the employee is exposed to toxic substances or is harmed by a defective product. Also, employees are not able to sue the business they work for but they can sue other parties for their injuries such as subcontractors, vehicle drivers, and landowners if they get injured on someone else’s property.
Contesting Workers Compensation
An employer can contest an employee receiving workers compensation if they dispute the validity of a claim that has been filed. Employers are given this right as their rates can go up if they have employees making claims on workers compensation. If an employer disputes a claim the case is reviewed by the state’s workers compensation board that will make a final determination on whether the claim is covered or not based on the facts.
When a workers compensation case is disputed by an employer the employee usually needs to be seen by a physician who will evaluate their medical condition for the state. What surprises many employees is that this evaluation is not protected by the usual doctor-patient confidentiality rules. Whatever they say to the doctor about their injuries will be told to the state for better or worse.
Once a state’s workers compensation board rules on a case it can be appealed. Who the appeal is heard by depends on the state but it can include either an administrative judge and/or a review panel. Beyond that, the case could end up in a state court in appeal although this is generally the exception to the rule.
There are injuries that are generally not covered at all under workers compensation. This can include if an employee was inebriated or on drugs while performing their duties. Self-inflicted injuries also will not be covered, including a person who gets injured while starting a physical fight. Other exemptions usually include the employee getting injured while committing a serious crime or if the employee was injured while out of compliance with the company’s safety policy.
How Much Workers Compensation Costs
Every state handles workers compensation differently. Additionally, every type of occupation has a different cost to insure under workers compensation as some occupations are more likely to result in injury than others do. Someone involved in construction, for instance, is more likely to lose time working due to an injury while on the job than someone that works in an office environment.
The cost of workers compensation varies quite a bit by state and occupation. On average, studies show that for every $100 in employee wages it costs $0.75 for workers compensation in Texas. In Alaska, however, it is $2.74 per $100 in wages. Other states fall in between these numbers.
Dangerous jobs like tree trimmers or welders could cost $15 per $100 in wages. Roofers cost on average $21.32 per $100 in wages as falling off a roof leads to very high medical bills usually and can be deadly. Low-risk occupations like an architect or an accountant might be just $0.25 per $100 in wages.
The accident history of your business will also determine the rate you will pay for workers compensation. Those businesses who exhibit no or few claims will pay less than other businesses where claims happen with some regularity. This further serves as an incentive for companies to make sure that worker safety is one of their top priorities.
Other ways to help reduce the cost of workers compensation include safety education at the business and strict safety guidelines that are followed by employees and management. Workplace accident prevention programs go a long ways towards helping to save money in the long run.
Where to Buy a Workers Compensation Policy
In most states you buy workers compensation insurance through an insurance agent, just like you buy your commercial general liability policy and other commercial insurance. There are four states where you buy your workers compensation policy directly through the state government. These four states are Washington, Ohio, North Dakota, and Wyoming.
Some companies offer a service where they can link to your business’ payroll which makes it easy to be sure you’re paying the correct amount as the insurance company can access your payroll figures directly. This is convenient, more efficient, and more accurate to make sure the correct amount is being paid each month. This also helps the business avoid large audit balances if it turns out they have been underpaying due to incorrect payroll figures being given to the insurance company.