In Alabama, state law requires employers carry workers’ compensation insurance when they have five or more employees. This insurance provides medical benefits and covers partial lost wages if an employee is injured while on the job. Alabama employers can expect to pay an average of $1.01 per $100 of payroll for the right insurance policy.
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What Are Alabama Workers’ Compensation Requirements?
The state’s Workers’ Compensation Division falls under the Alabama Department of Labor. Its job is to ensure that benefits are paid properly and adequate medical attention is provided to injured workers. It also oversees the requirements of individual self-insurers and group self-insurers. According to it, Alabama employers with five or more full-time or part-time employees must purchase workers’ compensation insurance. Employers with fewer employees may opt to buy coverage to provide benefits to injured employees and protect themselves in lawsuits.
While workers’ compensation laws vary by each state, most make workers’ comp a no-fault coverage, and so does Alabama. This means it doesn’t matter who caused the injury―employer, employee, or third-party―if the employee is hurt during work, benefits will be paid.
Who Doesn’t Need Workers’ Compensation Insurance in Alabama?
Aside from those that employ fewer than five employees, businesses don’t need workers’ compensation insurance if they employ:
- Domestic workers
- Farm laborers
- Casual workers
Additionally, municipalities with fewer than 2,000 residents are not required to cover their employees. Construction businesses and contractors involved in the on-site construction of detached single-family dwellings can apply for an exemption. The contractor exemption, once approved, removes liability from those doing business with the contractor as well as, such as a person hiring them to build a home.
Sole proprietors and business partners are exempt from carrying workers’ comp for themselves, but the reverse is true for corporate officers and limited liability company (LLC) members. They must include themselves in coverage, but they can specifically request an exemption. Of course, business owners can elect to cover exempt employees, thus providing broader coverage and protection for those they employ.
Where Can I Obtain Workers’ Compensation Insurance in Alabama?
Alabama is considered a competitive workers’ compensation market, meaning private insurance carriers compete for your business. While private carriers are the most common method for getting coverage, there are five ways to get workers’ comp insurance in Alabama:
- From an approved workers’ comp insurance carrier
- From the assigned risk pool managed by the National Council of Compensation Insurance (NCCI)
- Through a group self-insurance fund
- Through an individual self-insurance fund
- From an authorized insurance carrier approved to write alternative workers’ comp policies
Top Workers’ Compensation Insurance Insurers in Alabama
Make shopping for workers’ comp insurance easy by using a referral service that partners with more than 200 of the nation’s top insurance carriers and brokers. CommercialInsurance.net does just that. It serves as a marketplace for businesses to find the right carrier at the right price. It can help place even the most difficult of business policies with a carrier that understands the industry.
Want to work with an insurance carrier dedicated to making the process of having insurance easier? Check out The Hartford. It’s been writing insurance policies since 1810 and currently is considered one of the premier small business insurance carriers around. What makes this carrier special is how it builds policies from the ground up, often including more than what the competition does for no extra charge. We especially like it for professional businesses set in an office.
Restaurants and food services can be difficult businesses to get workers’ compensation for because employees are always around hazards like knives and hot surfaces. Liberty Mutual works with these companies to provide comprehensive coverage in both workers’ compensation policies and business owner’s policies (BOPs).
Chubb is known not only for having policies priced right but also for having fast and efficient claims. This is, in part, due to staffing nurses as workers’ compensation claims managers to help injured workers get the knowledgeable assistance that gets them back to work sooner than later. Chubb offers a wide array of business policies, including workers’ compensation, general liability, and business property.
Huckleberry is a small business insurance disrupter. Most insurance carriers need a lot of paperwork to write a workers’ compensation policy. With Huckleberry, you can have coverage within minutes without the hassle of stacks of paperwork. Business owners can also get general liability or a BOP from Huckleberry.
Can Businesses Self-insure in Alabama?
Alabama employers have the right to self-insure if they meet certain criteria, such as:
- Demonstrating a $5 million net worth
- Providing a balance sheet that shows a current assets-to-debts ratio of one or higher
- Showing a minimum three-year history of positive net income for the business
These requirements set the bar high and make it difficult for most small businesses to meet the eligibility demands to qualify for self-insurance. Most small businesses have better success seeking insurance from the private market.
Alabama employers who are unable to find workers’ compensation insurance through a private carrier or meet the criteria for self-insurance must obtain coverage through the assigned risk pool. This is a state-managed fund that ensures all businesses that are required to have workers’ comp can get a policy. It’s most often used by the highest risk industries or businesses with an extremely adverse claims history. The assigned risk pool is typically more expensive and considered an insurance of last resort.
How Much Does Alabama Workers’ Compensation Insurance Cost?
According to data from the National Academy of Social Insurance (NASI), Alabama business owners across all industries averaged $1.01 in premium for every $100 of payroll processed. This means that for every $100,000 in payroll costs, the average business owner pays $1,010 in insurance premiums for workers’ compensation.
It is important to remember that this is just an average. The actual cost of workers’ compensation premiums is contingent on the business’ industry classification and claims history along with the payroll costs. Ultimately, the riskier your company’s jobs are, and the more claims you have, the higher your premiums will be.
Sample Alabama Workers’ Compensation Rates by Class Code
Industry Class Code
5183 Plumbing Contractors
7208 Towing Company
8742 Sales Professional
8810 Clerical - Office
8824 Nursing Home
8831 Animal Shelters
9063 Fitness Center
Alabama Workers’ Compensation Cost Example
To give you an idea of how workers’ compensation premiums are calculated, we’ll use a towing company as an example. The towing company has five employees: two dispatch clerks and three tow truck drivers. For the sake of simplicity, the company has not had a claim in the past three years.
Payroll for the tow truck drivers is $180,000. Looking at the chart above, we see that the low rate for towing companies (class code 7208) is $3.75, so we divide the payroll by $100 and multiply the result by that rate:
($180,000 / $100) x $3.75 = $6,750
The dispatch clerks’ total annual salary is $70,000, but it gets separated out from the drivers and assigned class code 8810. Clerks sit in an office and typically don’t have the same amount of risk as a tow truck driver. Thus, their rate is significantly lower at 11 cents. The calculation using the low rate for the clerks looks like this:
($75,000 / $100) x 11 cents = $82.50
Then, we add both totals together to get the estimated annual premium for the towing business’ workers’ compensation policy:
$6,750 + $82.50 = $6,832.50.
This rate could go up or down depending on whether the company has claims. Claims are represented by a variable called the experience modification rate (EMR). The more claims you have, the higher your EMR. An EMR below 1 indicates fewer claims and can help reduce your rate.
Alabama Workers’ Comp Audit Requirements
Every Alabama workers’ comp policy is based on what you estimate your payroll will be for the year. Because there is no way to predict new hires, overtime, unpaid leave, and other events that may cause your payroll to fluctuate accurately, the insurance carrier audits your workers’ comp policy at the end of its term. This audit looks at the actual payroll and reconciles it with the estimates.
If you overestimated your payroll, you’ll be pleased to get a refund for the overage. However, if you underestimated payroll, you’ll have to pay the difference to the insurance carrier. Aside from reconciling payroll, this audit is also used to determine the next annual premium for your policy.
What Does Workers’ Compensation Insurance in Alabama Cover?
Workers’ compensation insurance pays for the costs associated with being injured while performing job duties. There are several key areas of benefits that employees may be entitled to:
- Medical benefits: The employer or the insurance carrier selects the physician and pays all reasonable costs associated with the injury, such as emergency room bills, surgeries, chiropractic care, prescription medication, medical devices, and physical therapy.
- Temporary total disability: An employee who cannot work while injured receives approximately two-thirds of their salary, with a maximum of $920 per week for injuries that occur between July 2020 and June 2021.
- Temporary partial disability: An employee who is injured but can perform some tasks receives two-thirds of the difference of what they earned preinjury and their current wages, capped at 300 weeks.
- Permanent partial disability: For many injuries, this is a weekly 66 ⅔% of the injured employee’s preinjury wages or $220, whichever is less. The number of weeks the employee receives these benefits depends on the injury and the degree of use lost.
- Permanent total disability: The employee is entitled to permanent disability payments at the same rate as permanent partial disability, but this benefit continues for the rest of the employee’s life.
- Death benefits: If the worker dies from their injuries and has one dependent, their surviving family members receive between 50% and 66.67% of his wages. Death benefits continue for a maximum of 500 weeks.
Alabama workers’ compensation laws include a three-day waiting period for temporary disability payments. Temporary partial and total disability benefits do not begin until the fourth day, but workers may receive compensation for the waiting period if their disability lasts longer than 21 days.
Alabama Workers’ Compensation Coverage Example
To get a better understanding of how a workers’ compensation claim gets paid out, let’s look at an example. Amy works in an office as a paralegal earning $60,000 a year or $1,153.85 per week. She trips on a box of court documents, hurts her back, and cannot work for seven weeks.
Because her injury lasts more than 21 days, she is entitled to temporary total disability payments for all the time that she cannot work. These payments are 66.67% of her average weekly wage prior to the injury, or $769.16 per week. At the same time, her employer’s workers’ comp policy pays all her doctors’ appointments along with the physical therapy she’s been prescribed.
Alabama Workers’ Compensation Coverage Exceptions
Under Alabama law, there are instances where an employee may be hurt while at work that are not covered by workers’ compensation insurance. The seven exceptions to coverage are:
- When the willful misconduct of the employee causes the accident.
- When a third-party or fellow employee harms the employee for personal reasons that have nothing to do with his employment.
- When an employee performs self-harm or intentionally tries to kill himself.
- If the employee is intoxicated or on illegal drugs.
- When an employee willfully refuses to use employer-provided safety appliances.
- When an employee intentionally neglects to perform a statutory duty.
- When the employee breaches a reasonable rule or regulation set forth by the employer that the employee was made aware of.
Should an employee be hurt under the circumstances mentioned above, workers’ compensation insurance does not pay benefits, and the claim will be denied.
COVID-Alabama workers’ compensation laws occupational diseases that result from on-the-job accidents or that develop as a direct result of prolonged exposure to a hazard unique to employment. This standard will likely make it difficult for most workers to receive benefits for coronavirus claims.
What Are the Penalties for Not Having Workers’ Compensation Insurance in Alabama?
Alabama employers who do not but should have workers’ compensation insurance can be fined. This fine, up to $1,000 per employee per day that insurance is not in force properly, is fairly steep compared to other states. To give an idea of how quickly the fines can add up, assume an employer has 15 employees and doesn’t have the mandated coverage for 10 days. At $1,000 per employee―for a total of $15,000―multiplied by 10 days, the employer could be looking at a $150,000 fine.
Other penalties include business closure by the state as well as potential criminal penalties that include both fines and jail time.
How Do I File a Workers’ Compensation Claim in Alabama?
When injured on the job, it’s important to make sure a claim is filed properly. Employees must report any injuries or incidents to their employer immediately. If the incident doesn’t result in a claim immediately, the employee has two years from that notification to file a claim. Injured workers should always get immediate medical attention for their injuries.
When notifying the employer about the incident, employees must provide the details of what happened, when, where, and how. Employees should also note who else was around when the accident happened. While this should all be done immediately to expedite claim benefits, the employee technically has five days to report the incident.
The employer, insurance carrier, or third-party administrator must fill out the Employer’s First Report of Injury (WCC Form 2 9/2006). This serves as the official notice to the Workers’ Compensation Division. If an employer refuses to submit this form, an injured employee can call the Workers’ Compensation Division to speak to an examiner about the next steps.
All forms sent to the Workers’ Compensation Division should be completed and submitted on time. As paperwork is sent, it will often have a deadline to provide the required information, usually doctor assessments. Failure to comply with documentation on time can result in the claim being closed or denied.
Alabama Workers’ Compensation Deadlines
Employers and employees must follow all rules and meet all deadlines to ensure the benefits get paid timely and properly. Perhaps the most important deadline is that an employee has just two years from the date of the injury to file a claim. If disability benefits have been made, then the employee has two years from the date of the last compensation payment to file a claim.
The law also requires employees to notify their employer of a workplace injury within five days. Written notice must be provided within 90 days; however, an employer’s actual knowledge of an injury is considered sufficient.
Alabama Workers’ Compensation Resources
- Contact information:
- Alabama Department of Labor
Workers’ Compensation Division
649 Monroe St.
Montgomery, AL 36131
- Alabama Department of Labor
- Key forms:
- First Report of Injury: Employers complete WCC Form 2 and submit it to the Workers’ Compensation Division
Alabama requires most businesses to get workers’ compensation or face stiff penalties for not. Even those who aren’t mandated to have policies should consider the benefits. After all, having a workers’ compensation policy in place helps mitigate any potential costs you might have in being sued by an employee injured on the job.
CommercialInsurance.net is a marketplace where you will be paired with the best insurance provider for your needs. It’s partnered with more than 200 insurance carriers, brokers, and agencies to bring affordable workers’ compensation to small business owners. Get a free quote in minutes.