Costs, coverage and how it works

Costs, coverage and how it works

Every state except Texas requires businesses to carry workers' compensation insurance. Workers' compensation insurance covers medical bills, rehabili

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Every state except Texas requires businesses to carry workers’ compensation insurance. Workers’ compensation insurance covers medical bills, rehabilitation costs and lost wages for employees who are injured at work or who are experiencing a work-related illness. The price can vary depending on your business’s location, industry and payroll. Typically, workers’ compensation insurance costs $ 500 to $ 600 in annual premiums.

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Average workers’ compensation insurance costs

The workers ‘classification risk affects workers’ compensation insurance costs. As the risk of injury to an employee increases, rates rise, exceeding thousands of dollars annually.

What coverage does workers’ compensation offer?

Because workers’ compensation is not a federal mandate, there are some differences in coverage for each state. However, there are overlapping benefit categories that offer workers’ compensation insurance:

  • Lost wages: Workers’ compensation helps employees by giving them a percentage of their wages when they are not working during their recovery
  • Medical expenses: Workers’ compensation insurance covers the cost of medical care, including occupational and physical therapy
  • Death benefit: Surviving family members can receive a financial benefit from an employee’s loss of income
  • Legal costs: Cover the employers’ legal costs and fees if an employer sues them for negligence

Most states cover employees who travel to another state for business purposes, but you may find that the scope of coverage varies by state. Business owners with traveling employees should discuss their situations with their agents. While state laws may differ related to a work-related injury, workers’ compensation insurance covers the injury as long as the employee does something related to their job, on the premises or at a client’s location.

What Workers’ Compensation Insurance Does Not Cover

Due to the state-to-state nature of workers’ compensation, there is some difference in what is covered. For example, some states limit coverage to injuries directly related to an employee’s work duties. Some common claim denials are:

  • Self-inflicted injuries
  • Injuries due to rough handling of employees
  • Injuries sustained during commuting to / from work
  • Injuries sustained during voluntary recreational activities
  • Injuries sustained during the commission of a crime
  • Injuries incurred when an employee violates company policy
  • Drug or alcohol related injuries

General Workers’ Compensation Insurance Exemptions

In addition to specific scenario-based cover exclusions, there are also exemptions for certain types of work, which means that they are not eligible for workers’ compensation insurance benefits:

  • Independent contractors: Independent contractors are not business employees, so they are not eligible for workers’ compensation benefits
  • Family members: Immediate family members are often exempt from cover because they may from time to time help with the business and do not count as real employees
  • Limited Liability (LLC) members and corporate officers: LLC members and corporate executives are often not considered real business employees, but many states allow them to sign up for coverage

How is Workers’ Compensation Insurance calculated?

There is a simple formula that insurance companies use to determine how much premium a business will pay. The formula takes into account the business class code (think: post type), claims history (referred to as experience modification rate or EMR) and the total payroll:

Steps on how to calculate Workers' Compensation Insurance.

  • Class code rate: A job is assigned a class code to determine the level of risk. Because of the importance of this number, every small business owner should review how their company classifies workers. The National Board of Compensation Insurance (NCCI) manages the class codes for 38 states. The remaining states either use their rating agency or function as a monopoly for workers’ compensation.
  • Experience modifier: An EMR is a multiplier starting at 1.0 and is used to determine whether an employer should pay more or less based on the number and type of workers’ compensation claims they have had. If the number is below 1.0, their rate will decrease, and the rate will increase if it is above 1.0.
  • Payment statement: The third part of the equation is the payroll. The gross payroll of the company is calculated and then divided by 100.

As a result of COVID-19, NCCI has reclassified employees who are unable to work but still receive salaries. On 5 April 2021, NCCI submitted a successful extension of this classification (amendment B-1443). This amendment will remain in effect with no expiration date. According to NCCI, a future filing will be done to set an expiration date.

How does workers’ compensation insurance work?

Workers’ compensation insurance provides coverage to employers when their employees suffer workplace injuries or occupational diseases. Workers’ compensation coverage limits the employer’s risk of lawsuits or fines. At the same time, employees have the support they need to recover from an injury, including surgery, rehabilitation and disability benefits.

Workers’ compensation insurance is a faultless cover which means it will be paid regardless of whether an employee or employer contributed to the loss. Employees usually cannot sue their employers while claiming workers’ compensation benefits. Should an employee claim that their injury is the result of employer negligence and file a lawsuit, many workers’ compensation policies carry employee liability coverage that provides coverage for those scenarios.

Whether your business offers health insurance benefits to its employees, almost every state requires a business to have workers’ compensation insurance. Companies that do not comply with the provision of workers’ compensation can be fined heavily. Because each state is different, you should contact your agency or insurance company for your state’s specific requirements. Business owners without employees may want to consider self-employed workers’ compensation.

If an employee is injured during work, it is essential to file a claim with your insurer in a timely manner. Provide the employee with the appropriate paperwork and guidance and comply with state legislation on the reporting of work-related injuries and illnesses.

Which Workers’ Insurance Company is Right for You?

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Ways to Get Workers’ Compensation Insurance

As with other business insurance policies, workers’ compensation is available on the open market. There are four main categories of workers compensation providers.

  • Private service provider: Commercial insurance providers can offer workers’ compensation policies. This option is best if you have to buy multiple policies, such as a business owner’s policy (BOP) or general liability, and your workers’ compensation. The best workers ‘compensation companies seek to train employers on safety and make it easy to buy and pay for workers’ compensation insurance.
  • State fund: If your business is in a high-risk industry or has existing workers’ compensation claims, obtaining insurance from your state fund may be the right choice. Not all states have a fund. However, Ohio, North Dakota, Washington and Wyoming require businesses to buy workers’ funds from the state fund.
  • Self-insurance: This can be an option for your business, depending on the state. If the state allows self-insurance, they require businesses to meet specific financial requirements or have a mortgage and appoint an administrator. Typically, you should also demonstrate a commitment to loss control and conduct a feasibility study.
  • Professional Employers’ Organization (PEO): If your EMR is not good and your existing premiums are too high, it may be best to consider a PEO. Instead of an individual quote that takes into account your claims history, you will benefit from having your employees merged with other employees. This results in a group rate that may be lower than what your business may qualify for on its own.

Bottom Line

Workers compensation insurance is an important policy that helps protect your business from liability and at the same time takes care of your employees should they get hurt while at work. As a cover required for businesses in almost every state, workers ‘compensation is something you do not want to overlook workers’ compensation as a small business owner.

By working with a workers’ insurance specialist, business owners can manage costs while having the right coverage. The Hartford can help with a fast, no obligation quote.

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