What is workers’ compensation insurance?
Workers' compensation insurance covers your employees' medical and disability expenses related to work-related illness and on-the-job injuries. Employers' liability coverage, which is normally included on a workers’ comp policy, protects your company by paying legal fees and any awarded settlements should an employee sue you, claiming that an illness or injury was caused by your company's negligence or failure to provide a safe workplace.
How do I know if I need workers’ comp insurance?
Workers' compensation insurance is required by law in most states for companies that have W2 employees, and in some states for 1099 contractors. Regardless of state law, clients often also require in their contracts that their contractors carry workers’ compensation insurance.
What are the workers’ compensation laws for each state?
It’s important to know your employer rights as well as the laws governing workers’ comp in your state. Workman’s comp is regulated by each state’s department of industrial relations, department of labor, department of insurance, department of employment, bureau of workers’ compensation, or a similar state agency. TechInsurance provides links to each state’s insurance web site for quick access to detailed information about workman’s compensation laws.
Do I have to carry workers’ compensation insurance if I don’t have employees?
If you have a one-person company, you may be operating in a state that does not require that you maintain workers' compensation coverage. However, your client may still require that you carry workers' compensation insurance. Why? In many states, unless a company can show that subcontractors carry their own workers' compensation insurance, subcontractors will be automatically covered under the hiring company's policy, at the hiring company’s expense.
Do I still need workers’ comp insurance if I use contractors instead of employees?
Contract employees, leased employees and some other work-for-hire situations may be exempt from workman’s comp insurance requirements, but some state laws do require companies to cover 1099 contractors. When you hire independent contractors to do work for you, you should require that they carry their own workers' compensation, or assume that you will have to pay additional premium to cover the subcontractor on your own policy.
My state requires me to carry workers’ compensation insurance, and so do my clients. But what’s in it for me?
Workers’ comp insurance medical benefits pay for doctor's visits, medication, diagnostic tests, therapy or hospital stays that are directly related to an accident or injury that occurred while the employee was on the job. Additionally, the policy will reimburse the employee for a portion of income lost due to work-related injury or illness. If the worst should happen and an employee is killed on the job, the insurance will pay death benefits to the survivors, as well as some funeral expenses. So, if your employee is hurt on the job and you have workers’ comp coverage, you won’t have to worry about paying those costs out of pocket.
There's another important benefit for you as an employer: The employment liability coverage included with your workers’ comp policy protects you from paying high lawyer fees or big settlements if an employee claims that your negligence, carelessness or failure to provide a safe working environment caused an accident or injury.
Do I have to pay for workers’ comp coverage for myself?
In some states, owners, officers, partners and other company principals can exclude themselves from their own companies' workers' compensation coverage. If you’ve got good health insurance and disability insurance policies, consider your risk low, and want to save on premiums, this may be a good choice for you.
What if I want to cancel my workers’ comp policy?
In virtually every state, the insurance company can charge and retain a minimum premium when a workers' compensation policy is cancelled. So, if you buy a workers' compensation policy and cancel it two months later, you will still owe the minimum premium, which can be much more than the cost of two months of coverage. In some states, the minimum premium can run from several hundred dollars to more than $1,000. So, read the fine print before you decide to cancel your workers' compensation policy, and be sure it will actually save you money.
What’s a premium audit?
Your workers’ compensation premium depends on the number of people you employ and what risk classifications those employees fall into, based on each person’s scope of employment. To determine these numbers, your carrier will conduct an annual premium audit and set your company's workers' compensation insurance premium for the policy period accordingly. It is important to note that during the audit period, the carrier may adjust the premiums and findings from current period and make that adjustment retroactive to cover the employees and risk classifications that were incurred during your previous policy period.
What can I do to minimize my premium?
Audit mistakes can cause you to lose coverage or can unnecessarily inflate your company's workers' compensation insurance premium, so it’s important to prepare. Designate a knowledgeable contact person for the auditor who is familiar with your employees’ work. Be sure to provide accurate and detailed information, because without it, the auditor may assume the worst-case scenario for risk exposure and increase your premium. Review your payroll documents to make sure that they will allow the auditor to readily break out overtime pay and discount it back to straight time, as is allowed in most (but not all) states' workers' compensation rules. Your payroll records should also reflect the actual hours spent by each employee in each of the different workplace exposure categories. Otherwise, all of the employee's payroll will go into the most expensive classification applicable. If your company uses 1099 subcontractors, show the certificates of insurance documenting that they have their own workers' compensation insurance.
What if I have employees in multiple states? (OK, make that Top 11 Questions.)
It is very important to break down your payroll by state. If you do not provide the insurance company with accurate information about payroll you have in each state where work is done, the insurance company will very likely not pay claims that occur in unreported states, even if the total payroll on your report is accurate. Be sure the person handling the audit in your office is aware of and has access to accurate information on out-of-state payroll, and that the audit is fully completed.