Workers’ compensation

Workers’ Compensation Insurance in the USA

Workers’ compensation is one of the simplest forms of business insurance, but that doesn’t mean it’s always easy to manage. If you’re looking for a dedicated team of experts to help you with business insurance, including workers’ compensation, to ensure everything is done right, I’d love to speak with you to see if we are a good fit for you and your business.

Often, business owners or contractors need a workers’ compensation policy to meet the requirements of a hiring provider, such as a general contractor or landlord. This may be necessary for retail businesses, restaurants, or event venues that require compensation for workers, such as food truck drivers or catering providers.

Workers’ compensation is a mandatory requirement in most states. When you have employees, most employers purchase a policy from an insurance company to comply with this legal requirement. This policy covers employees who are injured or become ill on the job, paying their medical expenses and lost wages if they need time off to recover.

A workers’ compensation policy protects both the employer and the employees. Employees can rest assured that in the event of injury or illness at work, they will receive statutory benefits to cover medical bills, hospitalization, and lost wages. Additionally, the policy includes coverage for vocational rehabilitation, funeral benefits, and survivor benefits if an employee dies on the job, as well as long-term compensation for permanent injuries.

For the employer, the workers’ compensation policy is protection against financial ruin in the event of an employee injury. Section 2 of the policy also protects the employer if the employee or their family files a lawsuit for external circumstances.

These policies can be easily obtained if you provide the correct payroll amount and necessary information at the start of the policy to avoid a large audit at the end of the policy term.

Key Requirements for Workers’ Compensation:

Each state sets its own workers’ compensation requirements.
However, having compensation is mandatory if you have employees, you must carry workers’ compensation insurance.

Steps for Obtaining Compensation

1. Obtain Insurance Certificates from Subcontractors

When hiring subcontractors, ensure they have an insurance certificate confirming workers’ compensation. This is important to do before work begins and before payment is made. If a subcontractor does not have insurance, it can lead to serious issues, especially during an audit.

2. The Impact of Subcontractors on Your Payroll

If you hire a subcontractor, such as a roofer, the payroll company will add the amount you paid that subcontractor to your payroll under the appropriate class code. This can significantly affect your costs, so it’s important to obtain an insurance certificate in advance.

3. Planning and Preparation

Success in managing workers’ compensation depends on careful planning. Don’t be the business owner who calls subcontractors at the last minute begging them to provide insurance certificates before an audit. This can lead to stress and additional expenses.

4. Using Insurance Company Resources

Your insurance company can be an important source of information and assistance. Reach out to them for advice and use the resources they provide. This will help you develop effective policies and procedures that include employee signatures.

5. Record Keeping

Ensure your payroll system can provide the necessary audit documentation. Keep subcontractor insurance certificates well-organized in an insurance file. This will help avoid issues during the annual audit.

6. Employee Training

Hold safety talks with your employees. Develop and implement policies and procedures that include employee signatures. This will help reduce claims and improve overall workplace safety.

How is Compensation Beneficial?

Facts show that the cost of the premium for a workers’ compensation policy will be significantly lower than the costs associated with your liability for all expenses related to any possible injury to that employee that may occur during their employment.

Therefore, it makes sense to allow your insurance provider’s expert to interact with your employee regarding doctor visits, rehabilitation, lost wage payments, and medical bill payments, so you don’t have to handle these issues personally.

What Will the Compensation Cost Be for This Job?

It’s important to understand that the premium for this job consists of three main components. The first is the class code. The work your employees perform determines their class code. The class code for a drywall installer will differ from that of a roofer. The class code for an office worker will differ from that of a driver, etc. Each class code will have its own rate per $100 of payroll. Knowing the rate you pay per $100 of payroll can help you project how changes in your workforce will affect your workers’ compensation costs.

When a worker is assigned to multiple class codes, their payroll is split between these codes.

However, if your payroll or monitoring system doesn’t break down payroll for each class code, the default rate applied will be the highest-rated class code, which typically occurs when one employee performs work under multiple class codes. For example, if you have an employee who works on roofing for four hours and then switches to painting for four hours.

To take advantage of savings on compensation, these hours must be split by class codes in your payroll system. Painting will be at a lower rate than roofing repairs.

The second part of premium calculation relates to the rules for splitting a worker’s payroll between class codes. These rules depend on your insurance provider.

Then, the payroll is multiplied by the class code rate to determine the premium paid.

This information allows you to project how hiring new employees will affect their future compensation amounts.

Once the class code for a new employee is determined, multiply the rate for that class code by the employee’s payroll and divide by 100. This gives you an idea of how your compensation expenses will change. Often, it’s necessary to provide the payroll for the entire year to determine the annual premium at the end of the policy term. The payroll company will then audit, and if your payroll was higher than projected, the audit will result in an additional premium. If the payroll was lower than projected, the audit will result in a premium refund. Therefore, if you expect significant fluctuations in your payroll, be sure to reach out to your insurance broker, and payroll records can be adjusted during the insurance year. These adjustments can help reduce the impact of the end-of-year audit.

Also, check with your provider if they offer a pay-as-you-go option. Pay-as-you-go requires more administrative work from you due to monthly reporting requirements. However, pay-as-you-go can eliminate negative audit results, as monthly payroll reporting minimizes the impact of payroll fluctuations. Many of the employers we work with benefit greatly from this, as they pay less for workers’ compensation during slower periods due to reduced payroll. On the contrary, during the busiest times, your premium increases, but you won’t need to worry about this increase happening at the end of your policy as a result of an audit.

The third component factored into the cost of compensation is called the experience modification factor. We call this the experience mod (e-mod). You earn an e-mod over time. If you’re a new business, your e-mod factor will be one. This is the starting point for the experience mod. If your mod drops below one, for example, 0.89, it means you’ll pay less for your workers’ compensation policy than if your e-mod were one. Conversely, if the e-mod is higher than one, for example, 1.25, it means you’ll pay more for coverage than if your e-mod were at or below one. As mentioned earlier, most start at one. Over time, if your work practices rarely result in claims, your experience modification factor will drop below one, which in turn will result in a lower premium.

This factor is designed to reward employers who implement safe work practices. If you’re competing for work against one of your competitors, the fact that your e-mod is lower than theirs could allow you to set a more competitive price. This strategic

factor is often critical for the most successful business owners.

How to Maintain Low Rates?

This is more about your business practices than anything else. Constant attention to new safe work practices and their implementation. This includes a zero-tolerance policy on drugs, a mandatory seatbelt policy, a mobile phone policy, regular safety meetings, the use of personal protective equipment, regular checks to ensure your equipment is functioning correctly, and ensuring all required safety devices are in place.

There are no straightforward recommendations on where to start for most companies, but there are several measures you can take. For example, some companies send their representatives to your work sites and help develop comprehensive workplace safety solutions. Many labor companies have online resources with ready-made videos or talks with toolkits, already prepared for your use. We recommend that your company has a safety officer responsible for safety. All of the above elements are usually free, but you must take the time to seek help from your provider, and just as important, you must be willing to implement these elements to ensure

Claims come through some time after an employee is injured. Discuss the claims process with your workers’ compensation provider before any claims are made. If a claim is inevitable, take the necessary steps to provide immediate medical assistance. Notify your agent and workers’ compensation provider as soon as possible. Your workers’ compensation provider will assist you.

What Factors Affect Claims?

One factor is that you need to understand that the rules and procedures you have in place can and will affect your claims. For example, if you have a seatbelt policy, an employee signed a commitment to comply, but they were not wearing a seatbelt during an accident, the company operator will reduce payments to the employee for failing to comply with the company’s policy.

It may seem strange, but we primarily want your employees to strictly follow company safety policies, and we also want your claims to be as low as possible to help shape positive collaboration factors.

Audits

If you don’t conduct an audit, the insurance company will simply increase your rates by about 25 percent, as you haven’t provided the information needed to verify the accuracy of the premium they are charging. On the other hand, an audit can be painful if you don’t update your payroll records as fluctuations occur. Accurate payroll allocation is necessary, especially if you have an employee who falls under multiple class codes, and it’s also important to retain certificates for all subcontractors you work with to show that they are paying workers’ compensation. Subcontractors are frequently used, and this factor also impacts your workers’ compensation.

Keep these insurance certificates for your subcontractors in your well-organized insurance file.

Workers’ Compensation Does NOT Cover Injuries Sustained:

•     Off-the-Job Injuries: For example, if an employee is injured over the weekend while playing sports or doing housework and tries to fake a work injury on Monday morning. Such cases are often uncovered by the insurance company or employer and can lead to accusations of insurance fraud.
•     Intentional Self-Harm: If an employee intentionally harms themselves, it is not covered by insurance.
•     Criminal Activity: Injuries sustained while committing a crime are not covered.
•     Workplace Fights: If an employee attacks another employee and gets injured, it is not covered.
•     Drugs and Alcohol: Injuries sustained while under the influence of drugs or alcohol are typically not covered.

The rules may vary from state to state, but these are the most common reasons for denial of coverage. The employer pays the workers’ compensation premium, and this premium is not deducted from employees’ paychecks like health insurance. It is entirely borne by the employer.

How Does an Employer Purchase Workers’ Compensation Insurance?

In most states, employers can purchase insurance from various sources: through an agent or broker, through a payroll service, or directly online from another provider. Premiums can vary from one company to another, so employers often shop for the best deal.

Here Are Some Tips to Help You Choose the Best Broker:

•     Use a Broker: If you have many employees, it’s best to purchase insurance through a broker who has experience in this field and can help with risk control and claims management.
•     One Broker: Don’t engage multiple brokers to find the lowest cost. A good broker represents most of the top insurance companies and can shop around for you, avoiding unnecessary hassle.
•     Pay-As-You-Go: If separating payments for each payroll period is important to you, most brokers can offer a pay-as-you-go policy so you don’t have to link it to your payroll provider. Using a payroll company usually incurs additional fees and doesn’t add much value.

Workers’ compensation is not just a legal requirement but an important tool for protecting your business and employees. By using the strategies outlined above, you can effectively manage this process, reduce costs, and ensure workplace safety. Don’t forget to plan and use the resources provided by your insurance company to avoid unpleasant surprises.