If you’re unsure about what workers’ compensation insurance is and whether you need to purchase a policy, keep reading! This article details everything you need to know about workers’ compensation and how it can benefit your business.
What Is Workers’ Compensation Insurance?
Irrespective of their line of work, employees can get hurt for various reasons on the job. Workers' compensation, or workers’ comp, as it is commonly referred to, is a government-mandated program that provides wage and medical benefits to employees who are injured as a direct result of the job.
Workers’ compensation insurance is purchased by businesses and underwritten by insurance companies. In some states, it’s underwritten by publicly supported state funds. Workers’ comp is essentially a disability insurance program between the management and the employee, where in exchange for purchasing workers’ compensation, employees waive their right to sue the business for injuries on the job.
Each state has a Workers' Compensation Board that mandates insurance coverage, oversees the program, and intervenes in the case of disputes. The coverage varies from state to state, so your wage and healthcare benefits will depend on the workers’ comp laws of the state in which your business is run.
Who Is Eligible for Workers’ Compensation?
Almost all states require businesses with employees apart from the owner to purchase workers’ compensation insurance for those employees.
Failing to provide workers’ comp can lead to drastic repercussions for your business. You may have to pay claims out of pocket, which can be a hefty expense. You could also be fined, face imprisonment, and lose the right to conduct business in the state.
Bear in mind that usually, only salaried employees of a business are eligible for workers’ comp. If you hire freelancers or contractors, you don’t have to purchase workers’ compensation on their behalf.
What Does it Cover?
Here is what a workers’ compensation insurance can cover:
- Treatment, recovery, and other medical expenses of an injured or sick employee.
- Any wages missed by an employee while they took time off to recover.
- Vocational rehabilitation costs if an employee requires ongoing care even after getting back to work.
- Death benefits, such as funeral costs when an employee passes away due to a work-related event.
Eligibility for Workers’ Compensation Insurance
It is important to remember that workers’ comp only provides wage and medical benefits for injuries or illnesses that happen because of the job. For example, if you work in a laboratory and develop breathing difficulties from inhaling chemicals, you’re eligible for workers’ compensation.
Workers’ comp can cover injuries resulting from work-related violence or terrorism. In some cases, it might also cover any injuries resulting from work-related natural disasters. About 30% of workers’ comp cases are due to sprains and strains that occur while lifting something heavy.
However, there are a few instances where an employee cannot claim workers’ comp. Here are some of them:
- When an employee is hurt during a fight with another employee.
- When an employee deliberately caused the fight.
- When an employee is injured on their commute to and from work.
- When an employee is intoxicated when getting injured.
Business owners also need to know that workers’ compensation insurance will not prevent an employee from suing you for discrimination, wrongful termination, gross negligence, malicious intent, and failure to promote.
Benefits of Workers’ Compensation Insurance
Employees Waive the Right to Sue
Recipients of workers’ compensation give up the right to sue their employer for negligence. However, both parties benefit from this bargain. Employees lose their right to sue but gain guaranteed compensation from their employers.
On the other hand, employers avoid the cost and consequences of a negligence lawsuit by accepting a degree of liability.
Sticking to State Laws Keeps You Compliant
By purchasing workers’ compensation for your employees, you’re ensuring that your business follows state laws. Not adhering to workers’ compensation laws or failing to purchase workers’ comp can negatively affect your business’s future prospects.
Monitoring state laws regarding workers’ compensation insurance and noting any changes can greatly benefit your business. It can help you determine the cost and extent of your liability.
Reduced Salary Payment (Cost Savings)
Depending on state law, workers’ compensation salary is usually less than an employee’s total salary. The most a workers’ comp coverage will pay is about two-thirds of an employee’s gross salary. This means that there is less financial liability on a business.
Any benefit provided as part of a workers’ compensation coverage is not taxable, both at the state and federal levels. This concession helps businesses compensate for much of the lost income. Your employees, however, may have to file for taxes if they receive Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI).
Provides Coverage Beyond State Mandates: Coverage A & Coverage B
There are two types of workers’ comp coverages, Coverage A & Coverage B.
Coverage A includes all the state-mandated benefits that an injured or sick employee is entitled to receive. It includes salary replacements, medical, rehabilitation, and death benefits as required. Eligibility rules vary from state to state. However, most states demand that businesses pay their employees these four basic benefits as part of a workers’ compensation insurance.
Coverage B includes the minimum state-mandated benefits mentioned under Coverage A and some additional benefits paid by the employer to an injured employee. In some cases, when there are extensive damages and an employee suffers due to employer negligence, the business may have to pay additional benefits and accept a more significant degree of liability.
These additional benefits are paid only when the business faces a lawsuit. And while it is true that employees who accept workers’ comp waive their right to sue, some state legislation can help restore the employee’s right to sue under specific circumstances.
If you’d like to know more about workers’ compensation insurance and how it can benefit your business, get in touch with us at DiNicola Insurance Services. We’re committed to bringing comprehensive insurance solutions, risk management strategies, and employee benefits to businesses and property owners throughout the United States. Our goal is to provide you with forward-thinking solutions designed to protect you, your staff, and your property against losses while also assisting you in mitigating risk. Call us at (415) 564-4400 or contact us online.