All About Workers’ Comp: What You Need to Know
Workers’ compensation coverage and whether or not it’s needed is something that has crossed the minds of many employers at one time or another. Knowing why you need workers’ compensation, how it works, and how you can pay less for it is helpful information that any employer should know.
Workers’ compensation is no new idea; in fact, it dates all the way back to about 2050 B.C. It is even recorded that pirates of the Caribbean had their own system of workers’ compensation. This system of workers’ comp entitled an injured crew member to receive a share of another pirate’s booty.
So pirates had workers’ comp. But why should you?
As an employer, owning a business with employees puts you at great risk of having extensive out-of-pocket costs if an employee gets injured on the job. That is why you can’t go wrong with having workers’ compensation coverage. Before you purchase your coverage, here’s what you need to know:
Each State is Different
Some states may not require an employer to have workers’ compensation coverage. If this is the case for your state, be aware that this doesn’t mean that you’re off the hook if an employee gets injured while working.
Policies are Divided into Two Parts
The two parts to these policies are Statutory Compensation and Employer Liability Coverage. Statutory Compensation’s primary concern is to make sure that the employee has full protection. This part of the policy provides the employee with coverage for the loss of wages when unable to work due to a work-related injury or illness. Part two, the Employer Liability Coverage, is subject to limits. In most cases, a business is responsible to pay half of the settlement, out of pocket. This happens when an employee sues the employer for damages that are above and beyond the compensation in part one.
Putting Business Costs Under Control
Workers’ compensation premiums can range from low to high. Since there is not much you can do to change the factors that determine these premiums, simply take a few steps to ensure that you are paying the lowest possible coverage rate.
Avoid Assigned Risk
For businesses that have a bulky claim history, or represent unusual risk, an assigned risk is used. In most cases, a business can be considered unusual risk if it is fairly new, or if the employees are performing dangerous work. Because of these factors, premiums will typically be higher.
Many times, insurance agents place new workers’ compensation policy applications to the assigned risk pool, without notifying the policyholders. In this case, you will want to make sure that you are aware if your policy was placed in the assigned risk pool. If your policy was placed in the assigned risk pool, make sure to double check with your state’s department of insurance, to find out whether the assigned risk premiums are higher than those that aren’t.
If your policy isn’t issued as assigned risk, known as direct-written, then check with your agent if you are eligible to receive any state credits to lower your current premium. For example, if your business maintains a drug or alcohol-free workplace, then you may be eligible to receive premium credits from the state. There are other ways for your policy to receive more credits, such as the availability for training and other safety programs.
Affinity Groups and Trade Associations
There are plenty of affinity groups and associations that sponsor workers’ compensation programs that may offer premium savings. If you belong to any organizations, such as the local chambers of commerce, you may be eligible for discounted insurance.
Before setting a final premium rate, insurance companies may send out an auditor to examine records, such as business payroll. Also, the auditor may do a full inspection of your business or operation. Once the audit is complete, it is helpful to review the auditor’s paperwork, to review for accuracy, including the payroll amounts.
The best place to start is to discuss the importance of safety to each of your employees. Your employees need to understand that their well-being is not the only reason to work safely. Let them know that a safer workplace means a more profitable one, since it lowers the cost for workers’ compensation insurance. Also, don’t forget to involve your employees, and ask them for their input. If there are any changes that you need to make in order to make operations run more smoothly and safely, then do so.
There are many things to consider when asking yourself if your business should offer its employees workers’ compensation. Always consider the type of risk that will be involved to determine the coverage you’ll need, check the laws in your state, and look into any premiums or other factors that could affect the bottom line.