Workers compensation is an important insurance policy that every employer is required to have. It serves to safeguard both business owners and employees in the event of work-related injuries.
In this article, we will explore the basics of workers compensation, including its coverage, how the policy is rated, and other important considerations for employers. Whether you are new to workers compensation or looking for ways to optimize your coverage, we’ll provide you with valuable insights. So let’s dive in and demystify the world of workers compensation.
What is Workers Compensation?
Workers compensation is an insurance policy mandated by state law, designed to protect employers and employees when work-related injuries occur. It provides coverage for two main areas: medical expenses and lost wages due to the injury. When an employee is hurt on the job, workers compensation ensures they receive necessary medical treatment and financial support during their recovery.
Coverage Details:
- Medical Expenses: Workers compensation covers the cost of medical treatments resulting from work-related injuries. Whether it’s a broken leg from a fall or stitches for a finger laceration, the policy takes care of these medical expenses.
- Lost Time from Work: If an employee is unable to work due to a work-related injury, workers compensation provides benefits to compensate for the wages they would have earned during that period. This is known as the indemnity portion of the claim and typically amounts to around 60% of their gross wages. The specific percentage varies by state.
Employers Liability
Workers compensation also includes employers liability coverage. This protects business owners if an employee decides to sue them for negligence in causing their injury or illness. Although the standard coverage limit is relatively low, it is advisable to consider upgrading to higher limits for better protection.
How is a Workers Compensation Policy Rated?
Workers compensation policies are primarily rated based on two factors: payroll and employee classifications. Payroll refers to the total amount of money you expect to pay your employees over the next 12 months. Each employee classification has a different rate based on the expected losses within that classification.
For instance, if you run an auto services garage, employees working at the front desk and mechanics working on cars are likely to fall under the same classification. However, if you have a contracting business with multiple trades such as concrete work, framing, masonry, and painting, each trade will have its own classification.
Classifying employees correctly is crucial because the rates for each classification are multiplied by the payroll to determine the baseline pricing for the policy. If employees are misclassified – it’s likely to come back on you during the Workers Comp audit.
Workers Comp Audit
Audits are conducted at the end of the policy term to ensure the accuracy of the estimated payroll. If the actual payroll is different from the original estimate, the premiums will be adjusted accordingly. This means that you run the risk of not paying enough over the course of the year and getting a big bill at the end of the policy term. Alternatively, you might overpay the insurance company limiting your cash flow.
Managing Your Workers Compensation
To effectively manage your workers compensation policy, it’s essential to consider strategies that mitigate payroll fluctuations and provide accurate coverage. One strategy is Pay As You Go billing, which links your policy to your payroll company, making it easier to track and manage cash flow. This method ensures you only pay premiums based on the actual payroll and helps avoid overpayment in uncertain times.
Conclusion
Workers compensation is a crucial insurance policy that protects both employers and employees in the event of work-related injuries. By understanding the coverage, policy ratings, and managing audits, employers can ensure they have the appropriate coverage and avoid unnecessary expenses. If you have questions or need assistance with your workers compensation policy, consulting with a knowledgeable insurance professional can help you find the best options for your business. At Still Risk Partners, we specialize in workers compensation and can provide expert guidance to optimize your coverage and save on premiums.