1. What is workers' compensation insurance?
Workers' compensation insurance covers your employee's medical and disablity expenses related to work-related illness and on-the-job injuries. The Employers' liability coverage, which is normally included on a workers' compensationpolicy, protects the company by paying legal fees and awarded settlements should an employee sue you, claiming that an work-related illness or injury was caused by your company's negligence or failure to provide a safe workplace.
2. How do I know if I need or require worker's compensation insurance?
Worker's compensation insurance is required by law in many states for companies that have W2 employees, and in some states for 1099 contractors. Regardless of state law, clients often also require in their contracts that their contractors carry workers' compensation insurance.
3. What are the worker's compensation laws for each state?
It's very important to know your employer rights as well as the laws governing worker's compensation in your local state. Workman's comp is regulated by each state's department of industrial relations, department of insurance, department of labour, department of employment, bureau of workers' compensation, or a similiar state agency.
4. Do I have to carry workers' compensation insurance if I don't have employees?
If you are indeed a one-person company, you may be operating in a state that doesn't require that you maintain worker's compensation insurance. Why so? In many states, unless a company can show that a subcontractors carry their own workers' compensation insurance, subcontractors will be automatically covered under hiring company's policy, at the hiring company's expense.
5. Do I still need worker's compensation insurance if I use contractors instead of employees?
Hiring contractors, leased employees, and some other work-for-hire situations may be exempt from workman's comp insurance requirements, but some state laws do require companies to cover 1099 contractors. If you hire an independent contractor to do work for you, you should require that they carry their own worker's compensation, or assume that you will have to pay additional premium to cover the sub-contractor on your own policy.
6. My state requires me to carry worker's comp insurance, and so do my clients. Am I really required to do so?
Workers' compensation insurance medical benefits pay for doctor visits, medication, diagnostic tests, therapy, or hospital stays that are directly related to an an injury or accident that occured while the employee was on the job. To add on to that,the policy will re-imburse the employee for a portion of income lost due to work-related ilnesses or injury. If the worst should ever happen and an employee is killed on the job, the insurance will pay death benefits to the survivors, as well as some of the funeral expenses. So, if your employee is hurt on the job and you have workers' comp coverage, you don't need to worry about paying those costs out of your pocket.
Another important benefit for you as an employer: the employment liability coverage included in your worker's compensation policy protects you from paying high attorney fees or large settlements if an employee claims that your negligence, carelessness, or failure to provide a safe working environment caused an injury or accident.
7. Am I required to pay for workers' comp coverage for myself?
In some states, officers, owners, partners and other company principals can exclude themselves from their own companies' worker's comp coverage. If you have a good health insurance plan and disability insurance policies, consider your risks low, and want to save on premiums, this may be a good choice for you if this was the case.
8. What happens if I want to cancel my workers' compensation policy?
In every state, the insurance company can charge and retain a minimum premium when a workers' compensation policy is cancelled. So, if you enroll into a workers' compensation policy and cancel it 2 months later, you still owe the minimum premium, which can be much more than just the cost of 2 months of coverage. In some states, the minimum premium can run from several hundred dollars to more than a thousand dollars. Please read the fine print before if you decide to cancel your workers' compensation policy, and be sure it will actually save you money.
9. What is a premium audit?
Your worker's compensation premium depends on the number of people you employ and what risk classification those employees fall into, based on each person's scope of employment. To determine these numbers, your carrier will conduct an annual premium audit and set your company's workers' compensation insurance premium for the policy period accordingly. It is important to note that during the audit period, the carrier may adjust the premiums and findings from current period and make that adjustment retroactive to cover the employees and risk classifications that were incurred during your previous policy period.
10. What can I do to minimize my premium?
Audit mistakes can cause you to lose coverage or can unnecessarily inflate your company's workers' compensation insurance premium, so it’s important to prepare. Designate a knowledgeable contact person for the auditor who is familiar with your employees’ work. Be sure to provide accurate and detailed information, because without it, the auditor may assume the worst-case scenario for risk exposure and increase your premium. Review your payroll documents to make sure that they will allow the auditor to readily break out overtime pay and discount it back to straight time, as is allowed in most (but not all) states' workers' compensation rules. Your payroll records should also reflect the actual hours spent by each employee in each of the different workplace exposure categories. Otherwise, all of the employee's payroll will go into the most expensive classification applicable. If your company uses 1099 subcontractors, show the certificates of insurance documenting that they have their own workers' compensation insurance.
11. What if I have employees in multiple states?
It is very important to break down your payroll by state. If you do not provide the insurance company with accurate information about payroll you have in each state where work is done, the insurance company will very likely not pay claims that occur in unreported states, even if the total payroll on your report is accurate. Be sure the person handling the audit in your office is aware of and has access to accurate information on out-of-state payroll, and that the audit is fully completed.