Workers Compensation

Workers Compensation is a state mandated, "no-fault" form of insurance that provides compensation medical care, part of lost wages and permanent disability for employees who are experiencing occupational diseases or are injured in the course of employment. This is in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. While plans differ between jurisdictions, provision can be made for weekly payments in place of wages.

General damages for pain and suffering, and punitive damages for employer negligence, are generally not available in worker compensation plans. Fault doesn't matter; employers are liable even if the employee may have contributed to the injury or illness. Not every employer needs workers' comp. In some states, small companies with fewer than three to five employees aren’t required to obtain it. Many states offer the employer the option to self-insure, or to cover the costs flowing from on-the-job injuries themselves.

Workers compensation is administered on a state-by-state basis with a state governing board overseeing public/private combinations of workers compensation systems. Texas is the only state that does not require it. The specifics vary from state to state.

The federal government has a workers' compensation program, subject to its own requirements and statutory parameters for federal employees. In the vast majority of states, workers' compensation is solely provided by private insurance companies. 12 states operate a state fund and a few have state-owned monopolies. To keep the state funds from crowding out private insurers, they are generally required to act as assigned-risk programs or insurers of last resort, and they can only write workers' compensation policies.

In contrast, private insurers can turn away the worst risks and can write comprehensive insurance packages covering general liability, natural disasters, and so on.

If you do need workers' comp, and you don't self-insure you need to figure how much coverage you will need per employee, and how much it will cost. What you end up paying will depend on the kind of business you're in. There are close to 700"occupational codes" used by insurers and each carry a different premium. (These codes are developed by the National Council on Compensation Insurance Inc.) Premiums are calculated for each $100 of payroll.

Rates are commonly set for three years, during which the insurer tracks how many claims you submit. After a period of three years, the "experience modification factor" or an evaluation of how your claims compared to other, similar businesses in your state kicks in. Coming in with fewer, less costly claims can earn a refund of part of your premium from some insurers. Safety practices can earn an additional discount.

When you established a good history with few claims, you may qualify for a "preferred" rate instead of a "standard" one.

In most states, you can get insurance through carriers you already know: Some states (North Dakota, Ohio, West Virginia, Washington and Wyoming) have a state agency that sells all workers compensation insurance in that state.

Whether or not your business needs workers' comp insurance now, it's good to know what to expect.