This article is part of a larger series on Workers' Compensation Insurance.
Every state except for Texas and South Dakota requires businesses to carry workers’ compensation insurance. Workers’ compensation insurance covers medical bills, rehabilitation costs, and lost wages for employees injured on the job or who experience a work-related illness. The price can vary depending on your business’s location, industry, and payroll. Typically, it costs $500 to $600 in annual premiums.
Having a provider who you can trust with your business is essential. The Hartford, through its agents, will work with you to get the right policy for your individual business needs. Get a free, no-obligation quote online in minutes.
Average Workers’ Compensation Insurance Costs
The workers’ classification risk influences workers’ compensation insurance costs. As the risk of an employee being injured increases, the rates go up, exceeding thousands of dollars annually.
Learn more about the best workers’ comp insurance companies in our detailed buyer’s guide to find the right provider for your business.
What Coverage Does Workers’ Compensation Provide?
Because workers’ compensation isn’t federally mandated, there are some differences in coverage for each state. However, there are overlapping benefit categories that workers’ compensation insurance provides:
- Lost wages: Workers’ compensation helps employees by giving them a percentage of their wage when they aren’t working during their recovery
- Medical expenses: Workers’ compensation insurance pays the cost of medical care, including occupational and physical therapy
- Death benefit: Surviving family members can receive a financial benefit from an employee’s income loss
- Legal costs: Covering the employers’ legal costs and fees if an employer sues them for negligence
Most states cover employees who travel to another state for business purposes, but you may find that the extent of the coverage changes by state. Business owners with traveling employees should discuss their situations with their agents. While state laws may differ related to a work-related injury, workers’ compensation insurance covers the injury as long as the employee is doing something related to their job, on-site or at a client’s location.
What Workers’ Compensation Insurance Doesn’t Cover
Due to the state-by-state nature of workers’ compensation, there’s some difference in what’s covered. For example, some states limit coverage to injuries directly related to an employee’s job duties. Some common claim denials are:
- Self-inflicted injuries
- Injuries due to employee roughhousing
- Injuries sustained while commuting to/from work
- Injuries sustained during voluntary recreational activities
- Injuries sustained while committing a crime
- Injuries sustained when an employee violates company policies
- Drug or alcohol-related injuries
Common Workers’ Compensation Insurance Exemptions
In addition to specific scenario-based coverage exclusions, there are also exemptions for certain types of jobs, meaning they aren’t eligible for workers’ compensation insurance benefits:
- Independent contractors: Independent contractors aren’t business employees, so they aren’t eligible for workers’ comp benefits
- Family members: Immediate family members are often exempt from coverage because they might be helping out from time to time with the business and not count as actual employees
- Limited liability company (LLC) members & corporate officers: LLC members and corporate officers often aren’t viewed as actual business employees but many states allow them to opt into coverage
How Is Workers’ Compensation Insurance Calculated?
There’s a simple formula that insurance carriers use to determine how much premium a business will pay. The formula considers the business class code (think: job type), claims history (referred to as experience modification rate or EMR), and the total payroll:
- Class code rate: A job is assigned a class code to determine the level of risk. Because of the importance of this number, every small business owner should review how their company classifies workers. The National Council on Compensation Insurance (NCCI) manages the class codes for 38 states. The remaining states use either their rating bureau or operate as a monopoly for workers’ compensation.
- Experience modifier: An EMR is a multiplier that starts at 1.0 and is used to determine whether an employer should pay more or less based on the number and types of workers’ comp claims they’ve had. If the number is below 1.0, their rate will go down, and the rate will go up if it’s above 1.0.
- Payroll: The third part of the equation is the payroll. The gross payroll of the company is calculated and then divided by 100.
Due to COVID-19, NCCI reclassified employees who cannot work but still receive paychecks. On April 5, 2021, NCCI filed a successful extension of this classification (amendment B-1443). This amendment will stay in effect with no expiration date. According to NCCI, a future filing will be made to establish an expiration date.
How Does Workers’ Compensation Insurance Work?
Workers’ compensation insurance provides coverage to employers when their employees suffer workplace injuries or occupational diseases. Workers’ compensation coverage limits the employer’s risk of lawsuits or fines. At the same time, employees have the support they need to recover from an injury, including surgery, rehabilitation, and disability pay.
Workers’ compensation insurance is a no-fault coverage meaning it will pay regardless of whether an employee or employer contributed to the loss. Employees usually cannot sue their employers while collecting workers’ compensation benefits. Should an employee claim their injury results from employer negligence and file a lawsuit, many workers’ compensation policies carry employee liability coverage providing coverage for those scenarios.
Whether your business offers health insurance benefits to its employees, nearly every state requires a business to have workers’ compensation insurance. Companies that don’t comply with providing workers’ compensation can be subject to hefty fines. Because each state is different, check in with your agency or insurance carrier on your state’s specific requirements. Business owners without employees may want to consider self-employed workers’ compensation.
If an employee gets hurt on the job, it’s essential to file a claim in a timely manner with your insurer. Provide the employee with the appropriate paperwork and guidance and comply with state law on reporting work-related injuries and illnesses.
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Ways to Get Workers’ Compensation Insurance
As with other business insurance policies, workers’ compensation is available on the open market. There are four main categories of workers’ compensation providers.
- Private carrier: Commercial insurance providers can offer workers’ compensation policies. This option is best if you need to buy multiple policies, such as a business owner’s policy (BOP) or general liability, and your workers’ compensation. The best workers’ compensation companies seek to train employers on safety and make buying and paying for workers’ compensation insurance easy.
- State fund: If your business is in a high-risk industry or has existing workers’ compensation claims, obtaining insurance from your state fund might be the right choice. Not all states have a fund. However, Ohio, North Dakota, Washington, and Wyoming require businesses to purchase workers’ comp from the state fund.
- Self-insurance: This may be an option for your business, depending upon the state. If the state allows self-insurance, they require businesses to meet specific financial requirements or have a bond and hire an administrator. Typically, you also need to demonstrate a commitment to loss control and conduct a feasibility study.
- Professional employer organization (PEO): If your EMR isn’t great and your existing premiums are too high, it may be best to consider a PEO. Instead of an individual quote that factors your claims history, you’ll benefit from your employees being pooled with other employees. That results in a group rate that can be lower than what your business might qualify for on its own.
Workers’ compensation insurance is an important policy that helps protect your business from liability and, at the same time, takes care of your employees should they get hurt on the job. As a coverage mandated for businesses in nearly every state, workers’ compensation is something that you don’t want to overlook workers’ compensation as a small business owner.
By working with a workers’ comp insurance specialist, business owners can manage costs while having the proper coverage. The Hartford can help with a fast, no-obligation quote.