Workers Compensation Insurance: Description of Worker’ Compensation Insurance

Workers compensation insurance benefits you, whether you are an employee or an employer. As an employee, workers compensation insurance will take care of your financial expenses if you are injured on-the-job. As an employer, workers compensation insurance protects you from being sued by your employees in purely accidental injury scenarios.

Every state has different laws governing their workers compensation. However, providing compensation to employees for work-related injuries, diseases or illnesses is mandatory for employers everywhere. In exchange for workers compensation, an employee relinquishes his right to sue his employer. In situations where the employer causes intentional injury or if an employee is injured by a defective product or a chemical, the employee can take his employer to court for pain and suffering, mental anguish and punitive damages.

Depending on the state you live in, an injured employee who can no longer work receives approximately two thirds of his salary. An injury can be physical or mental and it is the doctor’s responsibility to decide if the employee’s injury warrants workers compensation and time off from work. Workers compensation insurance will cover an employee for all work injury-related expenses, including:

  • Lost wages.
  • All medical expenses, including emergency, hospital and doctor bills, treatments and medication.
  • A settlement in relation to how permanent the employee’s injury. The amount is based on when and if he can return to his job, if can be given light duties instead, or if he can find a different job.
  • Death benefits.

It is the employer’s right to contest an employee’s claim. Some injuries are obvious, such as a lost finger. Other injuries are not so obvious; an employee claiming a repetitive stress injury, such as carpal tunnel syndrome or a chronic back problem, may find it difficult to prove the injury was sustained in the workplace.

Workers Compensation Insurance: Description of Worker’ Compensation Insurance

It is illegal for an employer to fire an employee for filing a workers compensation claim or for testifying for a coworker’s claim. The courts will fine the employer and the employee can sue him for lost wages and even get back his employment status. It is also illegal for an employer to refuse workers compensation to an employee. Again, he can end up paying fines and being sued.

Workers compensation, also known as “workman’s comp”, keeps workplace accidents from financially destroying an employer. At the same time, it takes care of an employee’s expenses when he is injured.

Workers Compensation Insurance: Who Pays For Workers Compensation Insurance?

If you have a business and you have employees, it is mandatory for you to provide injury compensation in the event your employee sustains an on-the-job injury. How an employer compensates an injured employee differs between states.

In most states, an employer can purchase workers compensation insurance from a private insurance company. In a few states, workers compensation insurance is only available through state-run programs commonly called monopoly state funds. Some states give employers a choice between a private insurance company and a government program.

There are even a couple of states that do not require their employers to invest in workers compensation. However, they are still required to financially cover their employees in the event of an injury. This is called self-insurance and there are a few other states that will allow this type of coverage for their larger companies.

There are a number of business types that are not required to invest in a workers compensation program, including sole proprietors and partnership companies that do not have any employees. Owners of these types of companies can invest in workers compensation for themselves and any partners, but it is not mandatory. Other situations that do not require workers compensation insurance include part-time domestic workers and other casual employees, as well as newspaper carriers, volunteers, real estate agents and agricultural workers.

Situations that an employer is not financially responsible to the employee include an employee’s self-inflicted wounds, injuries while the employee is committing a crime, an injury during off-hours, an injury sustained while the employee was not following the company’s safety policy.

Independent contractors and sub-contractors can receive workers compensation benefits through your company if he is injured on-the-job. It is wise to insist on proof of workers compensation coverage before you sign a contract. Even a home owner should insist on proof of coverage before they allow workers, such as landscapers or house painters, to work on their property.

Your state’s managed care organization (MCO) administers an employee’s workers compensation injury claim. They are the governing body that assesses the doctor’s report and treatment recommendations, and then calculates the appropriate payment to the employee.

One rule that is consistent throughout all the states is that it is illegal for an employer to ask an employee for any kind of financial contribution to the company’s workers compensation program. Contact your state’s Department of Insurance to learn about your responsibilities as an employer.

Workers Compensation Insurance: Rates For Workers Compensation Insurance

As an employer you likely have to find room in your budget to purchase workers compensation insurance. In most states and under most circumstances, it is illegal to even open your doors for business without being covered.

Workers Compensation Insurance: Who Pays For Workers Compensation Insurance?

Workers compensation can be as low as $6.00 per week per employee. Workers compensation rates are based on many factors, including the word of the National Council on Compensation Insurance. The NCCI is a private corporation that gathers and analyzes statistical data on workers compensation insurance from private insurance companies around the country. The NCCI then consolidates and distributes this information back to the insurance companies in the form of a manual for calculating premium rates. Insurance companies rely heavily on this document to guide them in their premium rate calculations.

Additional factors your premium rates are based on include:

  • Costs determined by your state’s workers compensation board.
  • Your industry’s classification code. A physically dangerous industry, such as logging, will have a high premium.
  • Your payroll and number of part-time and full-time employees.
  • Your company’s location. If your business is in an area exposed to natural or man-made risks, such as terrorism, you will have a higher premium.

You can reduce the rate of your premium by:

  • Having several years of experience in running a business, this will bring down your premium rate.
  • Having several years with no workers compensation claims by employees. A private insurance company may grant you a discount and if your program is run by your state, you may qualify for merit rating credits.
  • Having safety procedures and safety equipment will reduce your premium.
  • If your premium is very high you may qualify for discounts.
  • Increasing your deductible will decrease your premium.

Your insurance company may want to annually audit your company’s needs. This is a good practice that you can even request. As an employer, review the audit and make sure calculations are done properly, your classifications are correct, and that all claims have been recorded accurately.

There are a number of states that are attempting to reduce insurance costs by combining workers compensation with health insurance and disability insurance. Check with your state’s Department of Insurance for availability.

Find an insurance broker who knows your industry. He will be able to guide you to an insurance company that can provide you with the best plan at the best rate.

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