Posted on May 17, 2014
When it comes to protecting employees from work related injuries or illnesses, workers compensation insurance is the coverage employers need. While state laws vary concerning workers comp, all states except for Texas require that employers carry this coverage.
Workers Compensation Basics
The basics of workers compensation are very simple. When a worker is injured or becomes ill on the job, this insurance coverage pays for medical treatment, lost wages and vocational rehabilitation if needed. If a worker dies from the injury or illness, there is also a death benefit payable to his or her survivors. Because benefits vary from state to state, business owners will want to review the workers comp laws for the state in which their business is located.
Generally, wage benefits are a percentage of worker's average weekly wages and are based on whether the physician determines there is a temporary or permanent disability. The important point to note is that the workers comp system is "no fault" meaning that all injured employees are entitled to benefits regardless of fault.
Additionally, the only injuries or illnesses that are covered by workers compensation insurance are those that arise out of and during the course of employment. That means that employees must be injured while working. It is not necessary for the injury to take place on business premises.
Paying Workers Comp Premiums
Workers compensation insurance is paid for by the employer, and companies are not allowed to pass the cost on to their employees. Each insurance company determines rates based on the industry classification and claims loss history of the business seeking coverage. When a company has been insured for workers compensation over a period of years, they receive an experience modification factor or ex-mod. This experience modification calculates a company's loss history to determine whether the employer qualifies for a decrease or increase in base workers' comp rates. Companies with little or no claims will usually have a credit ex-mod that provides a discount to standard rates.
Who Needs Workers Compensation Insurance?
For the most part, all employers need workers compensation insurance to fully protect themselves and their workers even though not every employer is required to provide it. Although requirements vary from state to state, most states do offer exemptions to certain entities such as sole proprietors, partnerships and independent contractors. Some states also have minimum employee regulations so that, for example, only companies with five or more workers are required to obtain workers comp coverage.
Overall, workers compensation insurance provides a financial benefit to employees while protecting employers from civil lawsuits due to negligence. To gain a better understanding of specific requirements for your state, visit our state commercial insurance requirements page to learn more.