Why Do I Need Workers Compensation Insurance?
Regardless of how much coverage your state requires, if any, if you have even one employee who sustains a work-related injury the costs to you would be astronomical without workers compensation insurance. Workers compensation insurance pays the medical costs, a portion of the employees lost wages and damages for any impairment as a result of the injury. If the employee disagrees with the amounts awarded and files a workers compensation claim in a lawsuit, the claimant is responsible for the cost unless there is a settlement with the workers compensation carrier. This means attorney’s fees, travel costs, defense costs, damages, witness fees and other miscellaneous costs. Attorneys usually advance the fees for an injured employee, when allowed to do so under that states laws, and are reimbursed by the injured employee from the amount awarded. Many attorneys waive their fees, but not necessarily the costs, if they do not win the injured employee’s case.
According to the statistics, having a smaller business does not save you from workers comp claims. In 2015, a business with 50-249 employees had an incident rate of 3.72, while a business up to double the size, 250-999, had a slightly lower rate of 3.3. In fact, the number of employees injured on the job affects the amount you pay for workers compensation insurance premium depending on whether you have a debit or credit to apply to your premium. The numerical representation of your workers comp claims history and safety record is called your experience modifier rate, or EMR, it is used to compare businesses in the same industry, within the same state. Your EMR, sometimes referred to as E-Mod, MOD rate or Experience Rating, is used to help rate your workers comp insurance, a neutral rating is 1.0, while lower ratings denote a riskier company and higher ratings denote a safer than average company. Read more about how workers comp is rated in the What does Workers Compensation Insurance Cost? section above.
If you are a sole proprietor, or your business is a partnership, you may not need workers compensation insurance. Basically, if your employees are also owners in some way then most states will allow them to self-insure. There are some states that don’t require employees to be covered if they are paid solely on commission. Also, if you have less than five employees, depending on your state, you may be exempt from the mandatory coverage laws. However, be warned, if your family works in your business, even children, they are counted as employees under most state laws, though some do count parents, spouse and children as exceptions.
1According to Bureau of Labor Statistics (2015 data).
2Rates were calculated per 100 full-time employees.
What Does Workers Compensation Insurance Cost?
Rates for workers compensation insurance are based on a percentage of gross wages or a rate per $100 of payroll. There are three key factors that help determine rates:
- Claims history.
- Total payroll.
There is, however, another factor that attributes to the final cost of workers comp insurance, known as your Experience Rating. Your experience rating is the result of a calculation done using your actual loss data (usually past three years of claims) and the loss data of businesses similar to yours in size and industry (your class). The National Council on Compensation Insurance (NCCI) established rates based on industry and assigned class codes to each. Your business may fall into one or several of these classes. For example, a simple towing company in Missouri who also offers long distance towing would fall into two classes:
- 7228: Automobile Towing Companies—No Other Operations & Drivers—Local (Missouri).
- 7229: Automobile Towing Companies—No Other Operations & Drivers—Long Distance (Missouri).
Your experience rating can have either a positive or negative effect on your final premium. It’s somewhat similar to personal auto insurance. If you have a good driving record and your demographic is statistically known to be good drivers, then you will get good rates. In contrast, if you’ve had some accidents and tickets plus your demographic is statistically likely to receive tickets and get into accidents, then your premium may be high. However, also like most auto policies, there are often incentives worked in to help improve your experience rating and your lower your premiums.
Before buying traditional workers compensation insurance, read more about The Insurance Shop’s Pay As You Go Workers Compensation Insurance Program. This program changes the way your business pays premiums, including basing premiums on actual payroll instead of estimations.
The Insurance Shop works with the top carriers in workers compensation nationwide and can help secure you the coverage you need in any state. Our agents will work with you and the carriers to make sure you are being placed into the correct classes and are getting the best rates possible. At The Insurance Shop we do all the work, so you don’t have to.
What are Common Workers Comp Claims?
According to the annual Travelers Injury Impact Report, the top causes of accidents in the workplace can be broken down as follows:
- Material handling, 32%
- Slips, trips and falls, 16%
- Being struck by or colliding with an object, 10%
- Accidents involving tools, 7%
- Cumulative trauma, 4%
- All other, 31%
Material handling injuries such as strain and sprains, contusions, fractures and inflammation can arise from lifting, lowering, filling, emptying or carrying an item. These are the most common of injuries sustained on the job and arguably the most easily prevented. According to the Travelers report, while only 7 percent of accidents involved tools, it was small businesses (500 employees or less) that reported this accident the most with 13 percent of claims. Cumulative traumas are a growing trend in claims, they include injuries from repetitive motion (like using a mouse, lifting boxes or working on an assembly line).
How Can I Reduce my Risk?
Reducing risk for workers compensation insurance claims starts with knowing your state worker comp laws and regulations. There are many resources available to business owners looking for guidance in workers compensation, beginning with The Insurance Shop is a good start. We can point you towards the most reliable and up-to-date information about your state workers comp and walk you through what you need to know. Our agents are knowledgeable on many industries and can help you determine your risks as well as risk mitigating techniques. For example, we know that if you work in the retail industry you have a higher risk of an employee falling from above and might suggest you buy the extra sturdy safety ladder instead of the standard wheeled ladder. If your employees work at desks, you may think you don’t have to worry about safety much. However, there are many risks in an office space, such as cumulative traumas and slip and falls. Preventing such injuries means providing ergonomic work spaces and inspecting furniture and building for potential risks. Don’t get confused, get an Insurance Shop agent, we’ll guide you through state laws, carrier options, coverage options and more, to make sure you are covered and ready for business.
Frequently Asked Questions
- What if I only employ people seasonally? Or for special events?
States have different requirements for seasonal workers, such as farm workers or lifeguards. Purchasing short-term or seasonal coverage is easy, but you want to make sure that you are covered as required by state law, as well as based on your risks.
- What is the difference between a regular employee and a leased employee? Are they both covered?
When your business hires a temporary worker (leased employee) who is employed by an agency, that agency is still responsible for their employee, even on your work-site. However, your business still has some general liability for that employee and possible liability for a work injury. If you aren’t aware of what your general liability and workers comp policies cover, you can end up getting sued by a temporary worker for a work-related injury. Preventing such risks should be addressed in the hiring contract between business and agency or, if you hire temporary workers often, adding coverage to an existing policy with an Alternate Employer endorsement.
- My state calls it something different, are all workers compensation terms the same?
Work comp, workers comp, workman’s compensation, workmen compensation or any other variation of these terms are all correct and all mean the same thing.