Hi, I’m Gordon Coyle and welcome to my blog where I talk about business insurance and risk issues on the minds of business owners and entrepreneurs like you. In this video and post, I’ll explain how workers’ comp insurance actually works.
So, how do workers comp, work?
As I mentioned a minute ago, workers’ comp is a state requirement in most cases when you have employees.
Most employers purchase a policy from an insurance company to satisfy this legal requirement – there are four states which are monopolistic where your workers’ comp comes from the state authority.
Beyond the policy, workers’ comp works to cover employees who are injured or become ill on the job and pay for their medical costs and lost wages if they require time away from work to heal and recuperate.
Protecting the employer and the employee
The workers’ compensation policy protects both the employer and each employee of the employer.
The employee as I mentioned is secure in knowing that if they suffer an injury or illness on the job there have statutory benefits to cover them for $4 medical bills, hospitalization, and lost wages.
But workers comp goes beyond that to also cover vocational rehab, funeral, and survivors benefits if an employee is killed on the job and long-term compensation for permanent injuries.
The employer knows that workers’ compensation stands between them and financial ruin should an employee be injured.
In addition, section two of the workers’ comp policy also protects the employer if they are sued by the employee or their family for extraneous circumstances.
What injuries are not covered by workers’ compensation?
The most common example I’ve seen is when an employee is injured off the job – usually over the weekend playing sports or working around the house.
The employee doesn’t have health insurance so they try and fake an injury at work on Monday morning.
In many cases, these frauds are caught by the insurance company or the employer and are not covered.
Broadly, any injury or illness sustained outside of work and not performing job-related duties is not covered.
If an employee intentionally causes injury to themselves this is also typically not covered.
If an employee is injured while committing a crime, this is also not covered. A common situation I’ve seen is when one employee assaults another employee and is injured in the process of that assault.
An employee under the influence of drugs or alcohol who is injured on the job is also typically not covered.
Rules vary from state to state but these are the most common reasons employee injuries are not covered by workers’ compensation.
Who pays for workers’ compensation insurance?
The employer pays the premiums for workers comp and no part of that premium is deducted from employee paychecks.
It’s entirely borne by the employer.
How are workers’ comp claims paid?
When a worker is injured or becomes ill resulting from working on the job there should be a process put in place by the employer to make sure all the right steps are followed for successful claim outcomes.
- The first step is to report the claim. The injury or illness should be immediately reported to the employer, the HR manager, the department manager, or the person the employer puts in charge of injury reporting. This is unless the injury is severe and an emergency situation is at hand. Then the immediate manager or supervisor should call 911 immediately to arrange an emergency medical intervention. Once the first report of injury is gathered by the employer, it should be immediately reported to their insurance company. In most states, there is a statutory requirement for injury-first reports to be made in 5 days.
- In non-emergency situations following a first report of injury, the employee should seek medical treatment and keep the employer informed of their work eligibility status.
- As soon as practical the employee should complete their portion of the first report of the claim to the insurer.
- Investigation – shortly after the incident the employer should conduct an accident investigation prior to everyone getting back to work. The employer should collect eyewitness statements as to what happened, how it happened, and what other potential intervening factors were at play. That investigation is then discussed by company leadership to identify the root causes of the incident and how to prevent it from occurring again in the future.
- Once the dust settles, the insurance company will determine what benefits the employee is entitled to and begin reimbursing expenses and paying lost wages. Here, if the employer has a return to work or continuation of the salary plan it is triggered as soon as practical.
- The employer and the insurer should continue to work together to bring the injured worker back to work as soon as medically practical.
How does an employer buy workers’ comp insurance?
I have a specific video on this subject that you can view here: Best Workers Comp Insurance Rates – 4 Steps
But briefly, an employer in most states can buy insurance from several different sources. From an agent or broker like me, through their payroll service, or directly online from a provider.
In many states, the premiums will differ from one insurer to the next, so employers often shop around looking for the best deal.
I have a few thoughts here.
First, if you have more than a few employees you should consider purchasing workers’ compensation insurance through a broker who has specific expertise in this line of business and can help you with safety, risk control, and claims management as we do here at The Coyle Group.
Second, I’m not a big fan of engaging multiple brokers on the quest for the lowest costs. In many cases, a good broker like myself represents most of the best insurers writing workers comp, and we can do the shopping for you so you avoid the hassle of engaging multiple sellers.
Third, if breaking up your workers’ comp payments with each payroll is important to you, most brokers can get you pay-as-you-go workers comp so you don’t need to bundle it with your payroll provider. Using your payroll company typically incurs additional fees, and again a non-expert is handling what can be an expensive form of insurance and not add a lot of value to that transaction.
Here’s the bottom line workers’ compensation is the simplest form of business insurance there is – but that doesn’t make it easy.
If you’re looking for a team of dedicated experts to work with on your business insurance, including workers’ compensation, so that you are getting it right and keeping it right, then I’d love an opportunity to speak with you and see if we’re a good fit for you and your business.
I promise when we speak no aggressive sales tactics or other nonsense – just a conversation.