If you employ workers in your business, you've usually got to have workers' compensation insurance. It's required by law, and it makes good business sense in any case. If you pay attention, you can keep the costs of workers' compensation insurance to the minimum.

What Is Workers' Compensation Insurance?

Workers' compensation is a no fault insurance program. Not only must you as employer have workers' compensation insurance, it becomes your employees' exclusive remedy in the event they are injured on the job.

Workers' compensation provides two main benefits. It gives injured employees a guaranteed source of compensation for their injuries. It gives your business and you personally immunity from lawsuits for most injuries.

Of course workers' compensation is not just beneficial, it's mandatory. Failure to have it is typically a misdemeanor carrying a fine that's a multiple of the premium avoided.

State law governs workers' compensation for most employers. Federal workers' compensation laws apply to a few special industries. The laws set out the coverage, benefits and procedures for making claims. The laws also provide the circumstances in which employees may sue fellow workers and the employer for on the job injuries.

Depending on the state, an employer may have some options in obtaining insurance. These include purchasing from a state-run insurance pool, from a private insurance carrier and self-insuring.

Workers' compensation insurance typically covers:

  • Medical treatment
  • Temporary or permanent, partial or total disability payments
  • Permanent impairment (such as loss of a hand)
  • Death benefits to the employee's surviving dependents

How Much Will It Cost?

Workers' compensation rates will depend on a number of factors. These include how many employees you have, the type of work they do, the overall risks of your industry, your actual claims experience and your ability to find and eliminate workplace risks. Generally, insurance companies base their rates on loss data on each job classification. This data is compiled by the nonprofit, insurance industry owned, National Council on Compensation Insurance (NCCI).

Annual Check-ups

Workers' compensation insurers typically audit your business each year to set your premium. You will want to examine the audit. Pay special attention to the payroll calculation, employee classifications, and the reporting of injuries and safety violations.

Reducing the Cost of Coverage

You can reap some cost savings by trying the following:

  • Check your policy to make sure the job classifications and payroll of your employees are listed correctly. Premiums are much higher for machinery operators than clerical workers.
  • Comparison shop. Review your choices every couple of years, or if your premiums increase. Consider using an independent insurance agent to place your coverage.
  • Consider self-insuring or joining a self-insured group.
  • Your state may have a state mutual insurance company to provide a competitive source of coverage specifically for smaller businesses.
  • Invest in workplace safety. You can avoid accidents, improve your claims history, and get a lower premium. Ask your insurer for loss runs. This will let you analyze when and where your injuries occur and how much they cost.
  • You may save on medical treatment costs by using a managed care organization that works well with your workers' comp carrier. This can help reduce premiums.
  • Help return injured workers to productive employment even when they can't work their old jobs. A modified duty program can reduce losses that raise your experience modification factor ("experience mod").
  • Pay medical-only claims of $1,000 or less out of pocket. This will minimize the impact on your experience mod.
  • Keep tabs of your insurer's handling of all open claims. Make sure your insurer is on your side.

Working closely with your insurer and paying attention to these details will ensure that you have the required coverage at the least cost. Your employees will have the coverage they need, and a safer workplace too. And that should help you sleep better at night.

Questions for Your Attorney

  • What types of accidents or injuries are not covered by workers' compensation?
  • Five of us are partners in our business together. Do we need workers' compensation insurance?
  • Can a private insurer decline to issue workers' compensation insurance for my business?