Workers Compensation, some times called work comp or WC if you're getting super short with it, is an insurance policy designed to protect your business when a worker is injured. It's often packaged with Employers Liability and is typically mandated by your state. We'll explore the fine details about Workers Compensation, but bottom line: if you have any humans working for the business (full time, part time, sub contractors, etc.) then you need to consider a WC policy.
Workers Compensation protects your business when a full time, part time, or sub-contractor* is injured while working. This includes expenses such as medical bills, lost wages, rehabilitation, and death benefits.
Your WC policy is the most important part of your risk management portfolio if you have any workers. If you're saying to yourself, "well, I don't have any employees, so I don't need this." You are mistaken. A WC policy protects more than just employees.
Work-related injuries really depend on the type of operation, so the list of claim scenarios is infinite. Common examples of WC claims are slipping on wet floors, an injured back from carrying too much weight, a cut finger from sharp objects, and falling down a set of stairs. Workers Compensation and Employers Liability covers the business and worker from medical expenses, ongoing care, lawsuits & settlements, lost wages, and death benefits.
These unfortunate events are an everyday possibility within on premise and out in the field. A Workers Compensation will cover your business from the costs associated with an injured worker, often extremely expensive with bad injuries. Common injuries are the following:
- Back Injury
- Legs and Arm strains, sprains, and tears
- Factures & Breaks
- Concussions and other head injuries
- Cuts, lacerations, and other wounds
- Heat burns and toxic infections
- Soreness and swelling
This insurance is a benefit to the business and to the employee as it gives both parties the comfort of knowing any workplace injuries are compensated by the insurance policy. Some of the most common layers of coverage for a Workers Compensation and Employers Liability policy are the following:
- Medical Expenses: hospital bills and other medical costs such ER visits, surgeries, and medication.
- Ongoing Care: in rare occasions, injuries can be severe and requirement multiple treatments like physical therapy and other rehabilitation.
- Lawsuits & Settlements: legal fees and settlements such as court costs and attorney fees
- Lost Wages: if an injury requires time to recover, the insurance will pay lost income to the worker
- Death Benefits: in the worst scenario, an employee loses their life, the insurance will pay funeral costs and death benefits to workers beneficiaries.
Workers Compensation is designed to cover short-term and long-term costs related to the WC claim. Further, if an employees sues it will cover legal fees and settlements that occur during the litigation process.
Review your Workers Compensation policy for coverage limits, endorsements, and exclusions. Insurance companies have different policy language and it's important to review this with your advisor
There's a misconception around Workers Compensation in regard to the types of people covered. The reality, a Workers Compensation policy only covers what is listed in the policy and enforced by your state. Generally speaking, a workers compensation policy covers full-time employees, part-time employees, volunteers, and sub-contractors. However, this is not always the case, so it's vital you review your policy with your advisor.
In addition, there are certain states that have special litigation in place requiring coverage to be purchased exclusively through the state compensation program. These monopolistic states are typically not covered by a Workers Compensation policy.
Monopolistic states (as of December 2021) are the following:
- North Dakota
With some Workers Compensation policies, you have the option to purchase Stop Gap coverage. Say you are a California-based business and decide to hire a worker in North Dakota. Rather than purchase a separate policy with the state, you may be able to endorse your current Workers Compensation policy and add the coverage.
Last, you have a responsibility to describe each type of worker to properly classify them. Insurance carriers rate each worker differently. For example, an agricultural worker is rated much higher than an office worker.
You can get into trouble if you do not classify workers correctly, so make sure you organize a detailed report of all workers with your insurance advisor.
If you are a small business with one employee, or a large corporation with hundreds of workers, a Workers Compensation policy is the foundation of your risk management portfolio. Any business that has workers, from full time to part time, and sub contractors or volunteers, should consider a Workers Compensation and Employers Liability policy.
Industries such as construction, manufacturing, agriculture, and warehousing have a greater chance of injury, but businesses operating with an office only are still likely to have work related injuries.
Each state has their own set of rules and requirements that specify exempt employees, purchasing options, and monopolistic regulations (hello, Stop Gap coverage). For example. Wyoming, North Dakota, Ohio, and Washington are all monopolistic states are require coverage to be purchased directly from the state, not a private insurance company.
If you decide to wait to purchase Workers Compensation insurance, then you may be required to carry it by contract. Businesses that utilize smart risk management practices and contracts will often require their clients, vendors, and partners to carry Workers Compensation.
Workers Compensation does not cover claims that happen before a policy is bound (ie, purchased and put into effect). If you're here wondering if you should buy insurance because your worker is injured, then to purchase a policy and file a claim is fraud.
Like all insurance policies, fraudulent or criminal acts are not covered under a workers comp policy. In addition, most workers compensation policies may exclude the following incidents:
- Driving to and from work: workers that drive to work are not considered to be with the course of their employment and would therefore not be covered.
- Intentional Acts: if a workers intentionally injures themselves they are not covered
- Intoxication: if an employee is drunk or under the influence of an illegal substance, the injury may not be covered
- Terminated Employees: any workers that have been laid off or terminated from the company, are not covered.
If you have people involved with the business that are not directly working for the company, they are not covered by a Workers Compensation policy. Examples include:
- Customers: any customers injured are not covered by Workers Comp, they are covered by General Liability insurance
- Other Third Parties: other people like partners, vendors, and board members are not covered by a WC policy.
- Sub-contractors: some policies do not cover sub-contractors or 1099 employees.
Some of your owners or equity holders may be excluded. They have the option to exclude coverage to owners if elected to do so. This save money and assumes work related injuries are covered under their personal health insurance.
The claim process can change depending on various factors. A claim supported by medical records, pictures, and witnesses can move quickly vs a claim that lacks any detail or evidence. Today, fraud is extremely common and insurance carrier will investigate thoroughly if needed. In addition, the quality of your insurance carrier can often speed up or slow a process. If the carrier has a low financial rating or AM Best score, they may not have the funds or resources to move a claim along quickly.
An insurance claim typically begins with you and your broker discussing the claim and collecting the initial details. Then it's submitted to the claim processing department at the insurance company by your advisor. It will be reviewed by a team of adjustors and they will determine if they'd like to approve and pay, investigate, or deny the claim.
Here's a detailed list of the common steps during a workers compensation claim:
- Gather Information: When a situation happens and a worker is injured, we advise you speak with your advisor. You can discuss the situations and go over the information to file the claim.
- Deliver to Insurer: Once a claim form is filled out by the worker and the employer, often the manager or supervisor involved with the claim, the form is sent to the insurance company.
- Insurer Review: The insurance company has the right to review and investigate the claim including phone calls, further documentation, and in person visits.
- Response: Once they review the claim, the send a formal response. This could include further investigation, payment for all costs, or denial of the claim.
Claims should be submitted immediately after happening. Your broker can collect initial details, notify the carrier, and document the situation. Not submitting a claim can be an issue depending on your policy.
Every business has its own set of elements that affect the workers compensation premium, and ever state has their own set of rules. Companies with riskier operations, more employees, and previous claims will pay higher rates. For example, the rate for a cannabis grow worker is around 2%. So, if you are paying $1,000,000 in payroll for grow workers, you insurance premium could be $200,000 a year. On the other hand, the rate for an office worker is around .0004%. So, if you are paying $1,000,000 in payroll for office workers your insurance premium could be $4,100 a year.
The most common factors that affect the price or annual premium are:
- The state of hire
- Total annual payroll (per class)
- Type of worker
- The industry
- Claims history
- Risk management practices (see below)
Insurance companies are interested in covering businesses that implement risk management procedures and create safe workplaces. Often, an insurance company will discount your policy if you have the following:
- Monthly or Weekly Safety Meetings
- Safety Manuals and Employee Training
- Dedicated Safety Manager and Department
- MVR Monitoring
- Safety Equipment
The price you pay for insurance will decrease over time as workplace safety improves. It's worth the time and money to invest in safety people, practices, and equipment.
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