Fundamentals of Workers’ Compensation
Brief History of Workers’ Compensation
Workers’ Compensation is one of the few insurance lines that is legally mandated by states across the U.S. (unless you’re in Texas); But why?
Decades of legal disputes between employees and employers brought about the first workers’ compensation law in 1911 in Wisconsin, and for the next 40 or so years, the rest of the country followed suit.
These laws asserted that employers should be held responsible for injuries that occur on the job, and that they should provide financial means to recover to those employees injured, disabled, or even to their families in the event of death.
In return, the employees themselves should have no legal means by which to sue the employer.
Get In Touch
Questions? We're here to help.
Coverages
Workers’ Compensation promises to pay all compensation and other benefits required of the insured (employer) by the workers’ comp laws in the state where the insured’s business operates. These coverages generally include:
- Workers’ Comp Insurance – provides coverage for medical costs, surgery, prescriptions, partial or total disability, and death.
No dollar limit applies, except for those that are a part of state law
- Employer Liability – provides coverage for sums the insured becomes legally obligated to pay under common law because of a work-related injury or occupational disease.
3 separate limits apply:
Limit for Bodily Injury by accident per accident
Limit for Bodily Injury by disease per employee
Aggregate Limit for Bodily Injury by disease – regardless of the number of employee claims
- Other States – if the employer operates in multiple states, each state must be listed to be afforded coverage; the insured must provide notice to the insurer as soon as work begins in a new state
- Duties if Injury Occurs – insured must provide medical services required of the injured party, report the injury to their insurer, and cooperate with the insurer in the investigation and settlement of a claim
Who Must Carry Workers’ Comp?
Today’s labor market is far more complex and comes with its own set of challenges. States vary with regards to how many employees a business must have to be required to carry workers’ compensation. But what actually constitutes an employee? Do any exceptions apply to any particular industries? Do you have to carry any level of workers’ compensation insurance on 1099 employees?
According to the IRS, employers who answer yes to any of the below questions about the type of control they have over their 1099 contractors may need to classify them as W-2 employees:
- Can the employer dictate or control what the employee does or how they do their job?
- Does the employer directly control how the worker is paid or whether expenses are reimbursed?
- Does the employer provide the tools and supplies required for the worker to do their job?
- Does the employer provide the worker with benefits, such as retirement benefits, health insurance, or paid time off?
- Is the worker’s function key to the operation of the business, such as senior management?
For Tennessee laws and requirements, click here.
In short, the control over the employee, whether financially or behaviorally, and the type of relationship ultimately are the 3 main qualifiers when considering whether or not a court will classify a worker as an employee or not. To classify workers as 1099 contractors employers should be able to show that they have limited control over the worker.
Workers’ Comp Premiums
Workers’ compensation is rated on the basis of the employer’s payroll. Published manuals contain listings of rate classifications based on the type of work employees perform and their relative exposures to work-related injuries.
The actual loss history of a business is also taken into consideration, and a “modification factor” (also known as experience modifier or E-mod) is used to adjust the premium. Businesses with good safety practices are rewarded, and businesses with more frequent claims are penalized.
Additionally, businesses with return-to-work programs may also be rewarded with lower premiums. These programs allow employees to return to a lighter-duty job while they recover from injury or illness. Having return-to-work programs in place can also help control indirect costs, i.e., reducing lost productivity. The employee benefits in the way of a quicker recovery, increased self-worth, and preventing further salary interruption.
Where can I buy Workers’ Compensation coverage?
Most states allow the private sector to offer workers’ compensation insurance, however, there are also 4 “monopolistic” states (North Dakota, Ohio, Washington, and Wyoming) where all workers comp policies must be bought from a government-operated insurance fund – not by private insurers.
Note that in these monopolistic states, Employer Liability is not included (in order to remedy this issue, employers can seek out “stop-gap” coverage from private insurers).
Contact Us Today!
In conclusion, having adequate workers’ comp coverage can be crucial to a business’s longevity. As your business evolves and your needs change, the team at SouthPoint Risk is available to help! Call us today at 615-356-3212 or complete an insurance quote form here for a free consultation.
MEET THE AUTHOR
Jonathan Peters
Risk Advisor, SouthPoint Risk
