workers compensation insurance

In this guide we will talk about compensation: What it is and how it works in the US Remember that workers compensation or compensation covers the costs of employee injuries and illnesses ; including lost wages and more. Currently, it is a mandatory legal requirement for all companies with employees in the USA . But what is behind workers’ compensation? How is it calculated? Read on to find out!

What is Workers Compensation?

Workers’ compensation is a term used to cover a worker’s medical expenses and rehabilitation costs when they are injured in the workplace. For example, if an employee is forced to miss work due to an injury, insurance may pay him partially lost wages . On the other hand, some insurers offer workers’ compensation policies with exclusive death benefits.

Important: Workers’ compensation insurance also has benefits for employers . In fact, such a policy can cover legal expenses if an employee decides to sue the company for injury, illness or occupational accident.

What are the benefits of Workers’ Compensation?

If you are in the employee position, severance pay plays an important role when considering a new job and even a promotion. Remember that compensation can provide you with various benefits that go beyond paying medical bills . When considering a new position or reevaluating your current contract, your best bet will be to negotiate a much higher salary with better benefits.

Possible benefits of employee compensation insurance include:

  • Participation on possible actions and decisions . Some companies may offer profit sharing, bonuses, and stock decisions. These are different ways that you, as an employee, can benefit from the success of the company and earn additional commission pay.
  • Bonuses . Companies often find their best hires from internal referrals. Therefore, it will always be in the employer’s interest to incentivize employees through different performance bonuses. Or, a business may offer a loyalty bonus, meeting a sales target, or as a vacation benefit. Remember, these benefits add up over time.
  • Company match . In the USA there is a movement called “401k equalization”. This benefit is a great way to incentivize savings and ensure retirement. Currently, the average equivalent of 401k (in a US company) is 50 cents on the dollar of up to 6% of your salary. In other words, taking advantage of this plan is like accepting an annual increase of 3 to 6%.
  • Lifestyle benefits. There are certain business benefits such as: Cell phone plans, gym memberships, exclusive discounts at department stores, and more. So if you work for a company that works directly with the consumer, corporate discounts could be a big factor to take advantage of.

Who Should Buy Workers’ Compensation Insurance in the USA?

Most business owners with employees must purchase this type of coverage. However, you should remember that workers’ compensation requirements vary depending on the location of the business and the employees. So, if you are an employer and you want to make sure that the company has adequate coverage, seek advice from the insurance broker of your choice.

Important : In the USA the mandatory requirements for workers’ compensation insurance may vary depending on the state where the company is located. Always consult with experts before purchasing a policy of this type.

Finally, sole proprietors and the self-employed are not required to have coverage of this type. Although, our personal recommendation for freelancers is that they buy it in the same way. Since, by acquiring this policy, they will have the assurance that they will receive at least partial income in case of injury while working.

How is Workers’ Compensation Calculated in the USA?

The calculation of premiums on compensation for accidents is carried out through the following formula:

Payroll (per $ 100) x Class Code (position you hold) x Years of experience (if applicable) + State taxes and fees = Premium

Insurers often create compensation packages based on the value of the business and current labor market rates. Some important points that define the level of coverage of this type of insurance are:

  • Market factors . The insurer will observe the size of the company, stage of growth, location, type of industry; and even, it will take into account the competition.
  • Value proposition for employees. Some insurers take severance insurance as a powerful way to bring the value proposition to life for employees. In other words, the policy issuer will ask you how much you are willing to pay for the financial security of your employees in the event of injury or illness. In this way, you will get at least two proposals and the final decision will be yours.
  • Growth opportunities. We already know that not all companies have the same reputation or the same value for history. Therefore, the calculation of the indemnity policy can be quickly affected by the level of recognition of your organization. Therefore, it is normal for a company with a long history to offer fewer severance benefits, since it must pay more expensive policies.

Important : Employee compensation coverage is determined by factors such as college degree , skill set, job title , business location, and more. Remember that, if you are an employee and you want something more specific; you can always inquire about individual compensation plans .

How Much Does Workers’ Compensation Insurance Pay In The USA?

The amount of money and the time it takes to receive your payment depends exclusively on the state of your workplace and the conditions that you accepted in your employment contract . Remember, your employer’s workers’ compensation insurance will also provide payment for the medical care you need.

How to Qualify for Workers’ Compensation in the USA?

In addition to being an employee, there are other criteria to consider to qualify for workers’ compensation, and these are:

  • You work for an employer that has workers’ compensation insurance.
  • Your injury or disability is work related.
  • Check the deadlines and regulations necessary to file a claim in your state.
  • In the event of death, workers’ compensation must pay a series of benefits to your family.

How Do Workers’ Compensation Claims Work in the USA?

Employees experiencing a workplace injury or occupational illness should immediately report the incident to the employer’s human resources office . Generally, the reporting periods are different for each state; And if an employee does not file a report by the specified deadline, they may not receive benefits.

Here are a series of steps you should take after reporting an injury or illness:

  • Visit a licensed doctor . Injured or sick employees should seek medical assistance immediately. Remember that any delay can put your health and possible compensation benefits at risk. The doctor will then provide a medical report that you must send to the company along with the employee’s injury claim.
  • The claims process begins . Employers are responsible for providing the proper forms. In addition, it is important to know information about the claims process and the contact details of the company’s insurance company.
  • Submit the claim . If you are the affected person, you must file a claim with your employer’s insurance company. On the other hand, always make sure to pay attention to the reporting deadlines. Remember, the claim must include any state-required paperwork, forms, and medical reports.
  • Receive benefits . When the insurance company approves the claim, you as an employee start receiving compensation payments. Likewise, benefits can include coverage for medical expenses, rehabilitation costs, and two-thirds of your salary while you are unable to work.
  • Back to work. If you were injured and are already in partial recovery, you can work reduced hours or full time; this will depend exclusively on the doctor’s recommendation.

Important : Employers must make reasonable accommodations to assist the affected employee during the transition back to the workplace. In addition, the company must provide the necessary safety training to ensure that the same type of injury does not occur again.

Types of Workers’ Compensation Benefits in the USA

To understand how severance pay is calculated, an employee must remember that there are currently four different types of severance pay; and these are:

  • Weekly compensation.
  • Permanent disability compensation.
  • Vocational rehabilitation.
  • Payment of medical bills.

Weekly Compensation

The main difference between workers’ compensation cases and other types of personal injury is that the employee is not paid for pain and suffering. This is because workers’ compensation laws are strictly viewed as income protection laws. Therefore, your sole purpose is to provide disability income. In other words, if pain prevents an employee from working, they are entitled to weekly wage compensation .

Compensation for Total Disability

For employees who are totally disabled due to a work-related injury or illness; generally the employer’s insurance will not limit to receive benefits. However, all these very specific rules may vary depending on the state of residence of the affected person.

On the other hand, when determining how much an employee will receive each week, the calculation used is generally 60% of the employee’s weekly salary before their injury. However, in most states, the payment cannot exceed $ 1,000 per week, regardless of how much the person previously earned.

Workers’ Compensation for Partial Disability

Employees suffering from partial disability are benefits calculated in a very different way. In these cases, the insurer assumes that the employee can continue to perform some work tasks. Therefore, the benefits will be lower and are calculated by reducing the person’s weekly salary based on their current income . For example, if an employee made $ 1,000 per week prior to the injury and now earns only $ 500 because of not attending work every day; your profit would be 60% of $ 500. In other words, he receives $ 300 a week in compensation .

Permanent Disability Compensation

Employees who suffer from a permanent disability such as: Scars, limited use of a hand or a leg, are entitled to permanent disability benefits. In fact, if the employee’s condition meets the guidelines set forth by the American Medical Association, they are compensated based on how much they can continue to work despite the disability. For example, if a doctor determines that a person can only use 20% of his hand, the employee will be entitled to workers’ compensation of 20% of his hand. Therefore, if the law allows a payment of $ 100,000 for the complete loss of use of the hand, the employee would receive 25% of that benefit, which is $ 25,000.

Workers’ Compensation for Dismissal

The dismissal of an employee under normal circumstances should never be taken lightly, even if you have a valid reason to do so. However, firing an employee with a workers’ compensation license means taking on a new level of risk. Remember that anyone who was your employee can sue you if they think you are violating their rights. In these cases, where an employer is sued by a former employee is when workers’ compensation for termination occurs. In general, it is a procedure that requires a trial where the amount of money that the former employee is going to obtain is determined.

How important is my Residency Status to Workers’ Compensation within the USA?

Workers’ compensation systems are established by statute in each state . In other words, state laws and court decisions control the compensation program in every state, and no two counties have exactly the same laws and regulations on compensation. On the other hand, states determine characteristics such as: The amount of benefits an employee is entitled to, disabilities and injuries that are covered, and how they will provide medical care . All of these factors add or subtract money from the total amount the employee will charge.

Also, states dictate whether workers’ compensation insurance is provided by state agencies and private insurance companies or only by the state. In fact, each state also sets how claims will be handled, how disputes are resolved, and they are completely free to devise strategies to control costs.

Important : For the mandatory requirements where you live, visit the website of the workers’ compensation department in your state of residence.

What Injuries Are Covered In Workers’ Compensation In The USA?

Injuries suffered by employees in the workplace facilities or in any other space while the employee is during working hours are covered by insurance; at least as long as the employer has a workers’ compensation policy . For example, there is a very common cause of workers’ compensation claims and that is the death of employees from traffic accidents; that occur when the person was in a vehicle for work purposes, this applies to both company and own cars.

In addition to injuries from accidents, workers’ compensation covers employees for other events that occur while they are working, such as: violence in the workplace, terrorist attacks, and even natural disasters. On the other hand, workers’ compensation insurance also covers certain occupational and non-occupational diseases such as: Illness due to exposure to radiation and chemicals.

What Treatment Do Injured Workers Receive?

Injured workers receive all medically necessary and appropriate treatment. Today, with medical costs on the rise, many states have adopted measures designed to control expenses. Some of these measures are: Diagnostic tests , treatments, guidelines for detecting diseases, etc.

What Benefits Do Injured Workers Receive in the USA?

Indemnity benefits are based on whether the disability is total or partial; and it is also in itself permanent or temporary. In these cases, the insurer uses the term “impairment” to assess how serious the situation is. Therefore, the impairment of an employee is defined as a reduction in the ability to generate their own income.

It is important to mention that most states require benefits to be paid for the duration of the disability . However, some counties specify a maximum number of weeks , particularly for temporary disabilities.

Important : Remember that the total amount of the benefit to be received is a percentage of the worker’s weekly salary (real or state average).

I Have a Small Business: Should I Buy Workers’ Compensation Insurance?

In most states, sole proprietorships and partnerships are not required to purchase workers’ compensation unless and until they have non-owner employees. Currently, most states will allow sole proprietors and partners to purchase policies for workers’ compensation if they choose. Remember that some states do not require employees to be covered if they are paid only a commission salary.

It is important to remember that the law defines employees as persons who perform services under the direction of the contract employer . Also, many states exempt employers with only a few employees from mandatory coverage laws.

Important : The minimum number of employees who activate the compulsory insurance is three, four or five, depending on the state where the company operates. In fact, Texas is currently the only state where workers’ compensation insurance is 100% optional.

Important Points to Consider for Small Businesses in the USA

  • In some states, immediate family members of business owners (parents, spouse, and children) who work for the organization are not counted as actual employees. Therefore, the insurance does not cover workers’ compensation for these people. These exceptions do not apply to other family members such as: Sisters, brothers or in-laws.
  • In other counties, independent contractors are not considered employees of a business. However, for indemnity purposes, the insurance assumes a contractor or subcontractor as regular employees . Therefore, if you are the owner of the business, you will have to pay the medical expenses of the people who are injured while working for you.
  • In some cases and to avoid any unintended liability , larger companies often require contractors or subcontractors who work for them to provide proof that they have workers’ compensation insurance .

Important : Regardless of the number of employees you have, if an employee protected by state statute is injured or killed in the course of his or her work, the employer will be legally liable. Remember that a claim for a serious injury to an employee could bankrupt many small businesses.

Who Sells Workers’ Compensation Insurance in the USA?

Workers’ compensation insurance is not part of business owner policies (BOP). Therefore, this is a benefit that must be purchased as an additional insurance policy.

Each state has its own rules for where employers can buy workers’ compensation insurance . In fact, there are entities where employers are obliged to buy this insurance from the hand of a state monopoly insurer, known colloquially as a ” state fund “. On the other hand, there are other counties where this insurance can be purchased with private insurers.

Important : In states where state funds operate, employers can count on this resource when they cannot purchase coverage through private insurers .

How Are Workers’ Compensation Insurance Premiums Set In The USA?

Premiums are based on the industrial classification code and employer payroll. If you have a small business considered a “risk factor” such as: Garbage collection service or tree felling, the premiums are usually much higher compared to management companies, customer service, etc.

On the other hand, the location has also become a determining factor when it comes to obtaining a good price in premiums for this type of policy. Because, since the terrorist attacks of September 11, 2001, insurers have been taking a closer look at their exposure to catastrophes, both natural and man-made. So if your business is located in an area with high catastrophe risk , your insurance premiums will be considerably higher.

On the other hand, employers with a high annual premium are often eligible for what is known as an ” experience rating “. This term refers to those entrepreneurs who have a high claims history , at least in comparison with other companies in the same category; they will have to pay higher premiums.

Important : The experience rating is calculated based on the number of claims (frequency of loss) rather than the dollar value of the claims (severity of loss). 

Finally, remember that insurers know that where more accidents occur on a regular basis , there is a greater likelihood of large losses. A higher number of accidents indicates that in general working conditions are not as safe as an environment where fewer accidents occur.

What is the Workers’ Compensation Policy in the USA?

Generally, a workers’ compensation policy has two parts made up of:

  1. Workers’ compensation.
  2. Responsibility of the employer or company.

The first part refers to the fact that the insurer agrees to pay the compensation amounts required by the state. Although, unlike other types of insurance, workers’ compensation coverage has no limit on the amount of the policy that must be paid. In fact, the insurance company accepts all the legal obligation of the employer and what it is legally obliged to pay as a result of the injury of its workers.

On the other hand, the second part of the policy refers to the coverage that is assigned to an employer who is being sued by an employee; either for work-related injuries or bodily illnesses . This is possible as long as such injuries are not subject to state legal benefits. Generally, this coverage does have a spending limit .

Remember Your Obligations

In most states, if you are an employer, you are required to keep accident records . In fact, you need to report work-related accidents to your state workers’ compensation board and your insurer within a specified number of days.

Remember that the faster the insurer receives notification of an injury ; the shorter the time in which the worker will receive medical treatment . This way, you ensure that your missing employee returns to work as soon as possible. In these cases, some insurers help employers quickly file a ” first notice of injury ” with the state agency responsible for overseeing the workers’ compensation system.

How to Reduce Workers’ Compensation Premiums in the USA?

Here are a series of steps you can take when you are an employer that wants to reduce the cost of your premiums:

  • Take control of your possible risks.
  • Take advantage of savings opportunities,
  • Make sure your premium is calculated correctly.
  • Increase your deductibles.
  • Coordinate disability programs.

Take Control of Your Risks

Most small businesses can afford to hire a risk manager; however many of them do not know it. Remember, it is important that someone in the company take responsibility for loss control and handling of workers’ compensation claims. This implies managing aspects such as: Worker health programs, medical claims management, safety crews , injury prevention program, quality control and the early return to work of injured workers.

Important : In some states, insurers must provide accident prevention services to employers. Even if the law doesn’t require it, most insurers can help you improve the safety of your company and its workers. 

Take Advantage of Savings Opportunities

Currently, several states allow qualifying credits for merit. In fact, small businesses that typically pay around $ 5,000 in premiums or less may be entitled to a 5-15% credit if they haven’t had any claims for a designated period of at least 1 year. Also, some insurers may offer a premium discount if you hire a professional risk management company .

Calculate Your Premium Correctly

This point is really important, it is always better to make sure you have placed your company in the correct industry category. Therefore, before submitting your policy application, verify that the insurer’s payroll is adjusted for overtime pay; and also that the payroll of the different employees is correctly assigned.

Increase your Deductibles

Most states provide optional medical deductibles on these types of policies as a cost-saving measure. In fact, deductibles tend to promote greater safety awareness on the part of the employer; at the end of the day it will be you (as the owner of the company) who must pay the total deductible .

Coordinate Disability Programs

This is a possible option but not available in every state in the USA. Some companies are trying to control insurance costs by coordinating disability benefit plans for their employees; as well as dictating workshops on health care and workers’ compensation . Generally, integrating these types of programs promises to save money by using the same insurer for different types of additional coverage. Likewise, when you coordinate these types of programs, you can help your employees treat both work and non-work illnesses (including repetitive movements and mental stress).

Frequent questions

What is the Purpose of Workers’ Compensation?

A workers compensation is a compensation that is activated when an employee has an accident during his workday. 
This is a very important characteristic that every company must have to preserve the lives of its employees. 
Likewise, workers’ compensation insurance has two purposes:
1.First, it ensures that injured workers receive medical care and compensation for a portion of the income they lose while unable to return to work.
2.It generally protects other employers from the lawsuits of workers injured while on the job.

How Does a Workers’ Compensation Claim Work?

The basic steps to follow to make a claim are:
-File a claim online through a form on the official website of the insurer.
-Complete your data and personal information.
-Submit the form.
-The insurer will evaluate your case and will contact you as soon as possible.

What Are My Workers’ Compensation Costs As An Employer?

Your costs as an employer include:
-Insurance premiums.
-Payments made under the deductible policy.
-The administrative costs of handling claims and creating reports to send to both the state and the insurer.

Are My Employees Covered When They Work Or Travel To Other States?

Your workers’ compensation policy covers claims made only in the states named in the contract with the insurer. 
That is, if an employee is injured while working in another state, and that state has more generous benefits than the states named in your policy; the employee could file a claim in the other state.

Therefore, try to list the states where employees may work from time to time to ensure that there is coverage for claims filed in those states. Remember, the “add other states” benefit cannot be used to cover claims in counties where coverage must be obtained from the state workers’ compensation fund.

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