A Brief History
Workers compensation insurance recently celebrated its 100 year birthday. Prior to its existence, employees and their families could bring legal action against their employers for injuries or death they sustained at work.
During the turn of the century, work related accidents were frequent due in large part to a lack of safety features and protocols that are commonplace in today’s work environments. Manufacturing and industrial industries were especially plagued with machine related injuries that left many people partially or totally disabled, and even dead.
Factory working conditions were frequently less than ideal, with employees working long hours in poor conditions and with little safety equipment to protect them from dangerous machinery. Too many lawsuits against employers caused a large number of companies to close their doors, leaving hundreds of workers unemployed. And thus, workers compensation insurance was born.
Workers Compensation Insurance Definition
The plain and simple workers compensation insurance definition is that it is an employee’s sole remedy for compensation following a work related injury.
A typical Workers Compensation policy provides coverage for:
- Medical expenses
- Lost wages
- Permanent disability
- Rehabilitation costs
- Death benefits
At its base, workers compensation insurance accomplishes three things:
- Prevents workers from suing their employers directly for work related injuries.
- Compensates employees for their injuries sustained while on the job.
- Assists in the rehabilitation of workers who have been injured to get them back on the job as quickly as possible.
Workers Comp Requirements
Workers comp laws vary from state to state, but most require that you buy workers compensation insurance when your business meets or exceeds a particular employee count. For most states, this number is 3 employees or more. Check with your state’s insurance commissioners office for their requirements.
But be careful here, just because workers comp may not be required for businesses that have fewer than 3 employees, doesn’t mean that you shouldn’t buy it altogether. Remember, without a workers comp policy in place, employees can still sue you personally for their work related injuries.
Another point to consider is that owners may either include or exclude themselves from being covered on a workers comp policy. Whether you have your own health insurance or not may determine which way you want to go on this. If you’re worried about getting hurt on the job and you’re a one person operation, ask your local insurance agent about self employed workers compensation insurance.
Calculating Workers Compensation Insurance Premiums
One of the most frequent questions asked by employers is, “How is workers compensation insurance calculated?” Each insurance company has the freedom to determine their own workers compensation insurance premiums as they see fit. However, many of them take their cue from the National Council on Compensation Insurance (NCCI), which is the workers compensation insurance rating bureau. NCCI provides workers compensation insurance rates by state, using accident and loss data collected from virtually every working industry in America.
These rates are then classified into workers compensation insurance class codes for each job in every industry, which can be easily looked up by insurance carriers, brokers and independent agents.
Every class code developed by the workers compensation insurance rating bureau includes:
- A detailed definition of that job’s scope of work.
- A base workers compensation insurance rate.
- A listing of similar industry class codes for easy cross reference.
- A list of job responsibilities not contemplated by that particular job’s class code.
- A list of hazards commonly faced by workers in that job.
Getting A Workers Compensation Insurance Quote
If you’re like me, you begin your research on the Internet. Finding a workers compensation insurance quote online may be harder than you think, though. You’ll find a whole host of workers comp companies and insurance agents, but to actually buy workers compensation insurance online is another thing.
Your best bet for getting a workers compensation insurance quote is to contact a local independent insurance agent or broker. Because they usually represent multiple companies, you’ll only have to give them your business information once, and they’ll be able to provide you with several workers compensation insurance quotes.
Workers Compensation Insurance Audit
Your workers compensation quote will be calculated by multiplying the payroll you estimate each class code of worker will be paid by the rate assigned to each class code. It’s a simple calculation, but be careful, these are estimates of payroll you predict for the coming year. Lots of people try to cheat the system by underestimating their payroll. Don’t do it!
At the end of every policy year, your insurance company will perform a workers compensation insurance audit to determine the difference between the payroll you estimated at the beginning of the year and what you actually paid out to your employees. If you underestimated at the beginning of the year, you could get hit with an additional premium owed to the insurance company.
Pay As You Go Workers Compensation Insurance
If you’re in an industry that is hard to predict future payroll amounts, you might consider choosing a “pay as you go workers compensation insurance” policy. With this plan, you’ll send your insurance company a workers compensation insurance payroll report on a regular basis, usually monthly.
They’ll use this information to bill you each month based on your actual payroll, instead of your estimated annual payroll. This is great for home builders and other contractors who may not know how many employees they’ll need from month to month depending on how fast or slow business is.
Certificate of Workers Compensation Insurance
I’ve known a lot of small business owners who held off buying workers compensation insurance until someone required them to have it. For example, contractors are often asked to produce what’s called a Certificate of Insurance to the person or entity they’re doing work for.
It’s simply a standard form obtained from your insurance agent that proves you have certain limits of insurance with particular effective dates. Without it, you might not be allowed on the job site, so it’s a big deal to many business owners to be able to produce a certificate of insurance quickly.
General Liability and workers compensation insurance policies are the two most requested coverages on certificates of insurance. Just make sure your agent has the staff and resources they need to provide you with a certificate as quickly as possible, so you don’t miss out on any job bids.
5 Steps To Maintaining Cheap Workers Compensation Insurance
No doubt, the biggest challenge of business owners who buy workers compensation insurance is maintaining an affordable policy year after year. The name of the game when it comes to keeping your workers compensation premiums low is reducing losses. The less frequently accidents occur in your company, the more likely insurance companies are to provide you with cheap workers compensation insurance.
While NCCI and individual insurance carriers may determine workers compensation insurance rates, below is a list of things you can do to find and maintain cheap workers compensation insurance.
- Implement a formal written safety procedures manual.
- Hold regular “toolbox talks” about different workplace safety topics.
- Train employees how to use available safety equipment properly.
- Reward employees for demonstrating safe workplace habits.
- Apply for and achieve a Drug Free Workplace Certificate.
At its core, workers compensation is a simple concept. Employees use it as their sole remedy for compensation after a workplace injury. Now that you know more about the details of how workers compensation insurance works, give us a call at 888-971-6304 or fill out the form below to receive a free workers compensation insurance quote. We’re ready to help!