Obtaining Workers’ Compensation Insurance: Protect Your Business and Employees

Workers’ compensation insurance is designed to protect your business from costly injuries that employees incur. Without it, your company could be out of compliance with state laws, leaving employees financially exposed to workplace accidents. Obtaining workers’ compensation insurance doesn’t have to be complicated. Here’s what you need to know. 

What is Workers’ Compensation Insurance and Do I Need It?

Workers’ compensation is an insurance policy that pays the medical bills and lost wages of employees who get injured while working. As a small business owner, you likely need this policy if you have at least one employee. The only state completely exempt from workers’ compensation is Texas. 

How Do I Get Workers’ Compensation?

Getting a workers’ compensation policy takes a few easy steps. 

Determine Coverage Needs

Before buying a policy, determine your coverage needs as an employer. This means you need to determine if you need $100,000, $1 million, or more in coverage. The higher the risk an employer’s industry is, the more coverage they should get to ensure they have enough to cover employees’ potential accidents. 

Research Policy Types and Options

There are private insurers and public (state-run) insurance funds that provide workers’ compensation insurance. Determine what option is best for you. Some states require new and high-risk employers to use state funds, while private insurers may offer more competitive pricing for lower-risk entities. Talk to your agent to determine if you can use a standard policy or if you would best be served with a customizable option that offers one of many endorsements for protection. 

Select an Insurance Provider

Once you know what type of policy you need, choose a provider. It is often best to shop the policy around and get quotes for the same coverage options. Some insurance carriers have a bigger appetite for certain industries and thus will offer more competitive pricing for those employers. 

Apply for Workers’ Compensation Coverage

Once you have the carrier chosen, apply for coverage. To apply, you’ll need a copy of your annual payroll and the classification of each employee that tells the insurance company what the employee does, thus determining risk. 

Understanding Premium Costs

The premium for any workers’ compensation policy is determined in the same way. The insurer will divide the employer’s payroll by $100 and multiply that by the employee classification code rate. This is then multiplied by an experience modification number. The equation looks like this:

Premium = Classification code rate x Experience modification number x (Payroll/$100)

You can save money by classifying employees correctly and by keeping claims down. By classifying employees correctly (say, a secretary versus a roofing staff member), you get the lowest rate for the work being done. The experience modification number reflects your claims and should be kept as low as possible to get the best rate. Some insurance companies will offer further discounts for safety programs or for paying premium in whole for the entire year. 

Managing Future Claims

It is important to properly manage claims to ensure you are in compliance with state law and get claims expeditiously processed. While every state has its own law about filing timelines, you should expect that any law states that you report the claim as soon as possible. 

Step 1: Act Immediately

The process usually involves completing a form called a Report of First Incident or something similar. Medical aid should be rendered as soon as possible as well. 

Step 2: File the Claim

With the information gathered in the form, you call the claims department of the insurance company to open a claim. 

Step 3: Work with Adjuster

A claims adjuster will contact the injured party and any witnesses to gather pertinent information. They will also gather details from medical providers to see what the expected recovery time is and what work limitations there may be. 

Ensuring Ongoing Compliance

Every year, expect to have the workers’ compensation policy audited by the insurance company. This is normal and part of the process. The reason is that when the policy is written, historical data is used for the payroll, but the payroll needs to be adjusted for the actual data. This is done, and a bill is sent for the difference, or a refund check is issued. When you complete the audit, update coverage with the insurance company as needed. This is also a good time to shop your policy around and see if you can save any money. Know that implementing safety programs and training protocols can help get you a discount on coverage. 

Frequently Asked Questions About Workers’ Compensation Insurance (FAQs)

How Do I Know If I Need Workers’ Compensation Insurance?

If you have employees, chances are you need a policy. A quick call to an insurance agent in your state will help you determine if you need to get a policy or can wait until your business expands. 

How Much Workers’ Compensation Insurance Do I Need?

As a general rule, the more risk your employees take on a daily basis, the more coverage you should have because the injuries could be more serious. An office setup might be able to get away with only having $100,000 in coverage, while a drilling company will need more. 

How Long Do I Have to Buy Workers’ Compensation Insurance?

Your workers’ compensation policy should be in effect before your employee starts his first shift. Without it, you are in non-compliance with state laws and could be penalized. 

Obtaining Workers’ Compensation for Business Security and Safety

Shop among the best workers’ compensation insurance companies to get a great rate with amazing coverage. It will keep you in compliance and protect you as an employer from financial losses resulting from a claim.