As an employer, it’s your responsibility to provide a safe working environment for your employees.
However, accidents occur, and employees may sustain injuries despite your efforts to keep them safe and to comply with legal requirements. For these circumstances, you need a workers’ compensation plan to cover the cost of medical treatments and lost wages.
What is Worker’s Compensation Insurance?
Workers’ compensation insurance, better known as workers’ comp, is a type of insurance policy purchased by business owners. The insurance provides benefits to employees should they suffer from a work-related injury or illness. Benefits may include compensation for:
- Medical treatment expenses
- Vocational rehabilitation expenses
- Loss of wages accrued during recovery
- Funeral costs, in case of a fatality
Who Needs Workers’ Comp?
Insurance laws vary from state to state. Most jurisdictions within the U.S. require business owners to take out workers’ comp policies regardless of the size or nature of their business. You can click here to learn more about workers’ comp laws in your state.
How are Workers’ Comp Premiums Determined?
Insurance providers consider a number of factors when determining premiums for workers’ comp, for example:
- The company’s number of employees and total payroll
- The industry the company works within and the associated risks
- What kind of labor employees perform
- The classification of employees
- Previous accident history
- The experience modification factor
In most of the states, it is the NCCI (National Council on Compensation Insurance) that determines the experience modification factor and the industry classification rate based on its class codes.
What Policy Options do I Have for my Business?
The workers’ comp coverage options you have depend on the state in which you run your business. If the company operates in a state with a monopolistic state fund, you must purchase a workers’ comp policy through that fund. States with monopolistic funds include Ohio, Washington, Wyoming, and North Dakota.
If this applies to your business, keep the following nuances in mind:
- You will have to buy independent insurance for out-of-state employees from a private insurer in that state.
- The state fund does not cover legal charges that you may incur if an employee sues you for personal injury. Instead, you will have to purchase general liability coverage from a private insurance company to cover such charges.
If you run your business in any start other than Washington, Wyoming, Ohio, North Dakota, or Texas (where workers’ comp is not mandatory), you can decide between purchasing workers comp’ through a private insurer or from the competitive state fund.
This means you can explore your options, shop for quotes, and select the coverage that matches your specific needs. In general, policies from private insurers and state fund policies in competitive states do cover out-of-state employees as well as some legal fees.
If you don’t want to purchase workers’ comp from the state fund or a private carrier, some states allow you to be self-insured. However, you may have to satisfy certain eligibility criteria.
Choosing the Right Policy
Business owners who operate in states with competitive funds get to choose their preferred workers’ compensation policy. Here are a few tips you might want to consider while shopping around for workers’ comp plans:
- Get in touch with a good insurance broker or agent who can suggest the best workers’ comp policy based on your specific requirements.
- Make sure you understand the exact workers’ compensation requirements of your state.
- Discuss workers’ comp with trusted employees or a union representative. Doing so should give you a sense of what your workers value in an insurance policy.
- Ask for quotes so you can make direct price comparisons between companies.
Prevention: The Best Form of Protection
While workers’ comp is required by law, you should think of it as a last resort. As an employer, you should do everything you can to ensure the safety of your employees. This includes frequent inspection of machinery and the workplace, extensive training, and a well-defined safety plan. Workers’ compensation will cover you and your employees should an accident occur, however, it’s best to prevent these occurrences altogether.
