When you’re trying to work your magic as an employer, workers’ comp may be the last thing on your mind. You know you have to do your homework, but you’re not sure why, or even where you should begin. This article will answer your top worker’s comp questions, so you can figure out exactly what you need to do for you and your team.
Hold on. What is workers’ comp exactly?
Excellent question. Workers’ compensation insurance, commonly shortened to workers’ comp, is an insurance program that protects your team if they ever get hurt at work. Specifically, it covers medical expenses that are needed to diagnose and treat injuries. In some cases, workers’ comp insurance can also contribute to lost wages and legal bills, in addition to rehabilitation, retraining, and other benefits that help speed up an employee’s path to recovery.
Why do I need it?
First and foremost because federal law requires it. Employers in every state except Texas are required to have coverage based on state requirements determined by how many employees you have. Not having workers’ comp can also put you at risk for some hefty fines. To see what your responsibilities are, find your state on this chart.
Providing workers’ comp is also a meaningful way to show your team that you care about their future. It gives your employees a safety net, which can provide a huge sense of relief for someone who is injured, and therefore, unable to work.
Additionally, employers with workers’ comp are protected from lawsuits since it’s a no-fault kind of insurance. In other words, it allows policyholders to collect any losses, no matter who is responsible.
What are my options?
A traditional policy charges an upfront premium that’s based on your estimated annual payroll. along with your risk classification that’s tied to the type of industry you’re in. Why does this matter? Well, certain industries are dicier than others. For example, if you’re a dynamite manufacturer, your risk might be a little higher than say, a donut shop. (Even if their frosting is the bomb.)
At the end of the year, an audit is conducted to make sure your premium price is fair. The auditor compares your actual payroll amount to the premium you’re getting charged. At the same time, they also double check that your team is classified correctly. Based on the audit, your company may be required to pay more or you might get a refund.
Here’s a bit more on how employee classification plays into this: Let’s say you own a landscaping company and you want to add tree removal to your line of services. To kick off the new offering, you put two of your landscapers on your chainsaw crew. This new risk means that your chainsaw-wielding employees will be classified differently than the other landscapers on your team.
2. Pay as you go
The pay-as-you-go option is only available if your workers’ comp is integrated with your payroll. This means that a company’s premium is automatically calculates based on the actual amount of payroll they paid out each pay period. This means no estimates, no hefty upfront payments and 100% accurate deductions.
With direct communication with your insurance carrier, this model also helps you minimize or potentially eliminate the pain of expensive audits altogether. As a result, you don’t overpay or underpay, and you never forget about sending in a payment.
3. State fund
State funds are commonly seen as a last resort for companies who can’t get their hands on a private policy. Since workers’ comp is required in most states, this can be a solid choice for businesses who have a higher risk or have a long history with losses and claims. Want to see what’s out there? Here’s a list of all the available state funds.
How is a quote calculated?
A workers’ comp quote is determined using the following factors:
- Annual Payroll: The smaller your team, the smaller your premium.
- Claims History: If you have a low frequency of losses or accidents, your premium may also be lower.
- Business industry and role of employees: If your business industry and/or employees’ roles are deemed “high risk,” your premiums may be higher.
- Inclusion/exclusion of owners or officers: Some states allow corporations to exclude owners and/or officers from coverage, which can lower the price of premiums.
Great. Now, what do I need to get a quote?
Many insurance companies integrate workers’ comp directly with payroll, which can make things a whole lot easier. This leads to quicker quotes and a smoother way to pay premiums since it’s already connected to payroll data. But regardless of how you purchase your insurance, remember to have the following information on hand when it’s time to get a quote:
- Business name
- Physical and mailing addresses
- Telephone & fax numbers
- Number of locations
- Number of employees by location
- Annual payroll by location
- Type of business entity
- Federal Tax ID Number (FEIN) for your business, or a Social Security number if you’re a sole proprietor.
- Recent history of any workers’ comp claims
Your workers’ comp lesson is now a wrap. By now, you should have a better idea of what it means so you can get started on next steps. With the right policy in the bag, you can keep your team safe, no matter what life throws their way.