What Is Workers' Comp?
Accidents happen. Even with the most comprehensive safety policies in place, it’s not uncommon for employees to sustain injuries, forcing them off the job for a period of time.
That’s where workers’ comp comes in.
In this helpful explainer, we’ll review everything you need to know about workers’ comp insurance, who needs it, where to get it, and so much more.
What Is Workers’ Comp Insurance?
Workers’ Comp insurance covers costs resulting from workplace injuries, including medical care, lost wages, and rehabilitation. In the tragic and horrifying scenario of an employee losing their life from a workplace injury, it may also pay funeral expenses.
The policy should apply if the injury occurs at work or while the employee is acting on behalf of the employer, such as while running a work-related errand. Other seemingly out of the ordinary injuries may also apply, including those stemming from violence, terrorism, natural disasters, and illnesses resulting from workplace exposures.
While some business owners might think their commercial general liability (CGL) or employee health insurance will cover these expenses, most policies exclude employee workplace injuries. If your employee is hurt and you lack coverage, they may sue you or bear the financial burden themselves.
Workers’ comp laws vary by state, so work with local experts to weigh insurance needs and determine which requirements apply.
What Is the Importance of Providing Workers’ Comp?
Providing such insurance is essential for safeguarding both the financial well-being of employees and ensuring the legal compliance and continuity of your business.
Workers’ comp insurance plays a crucial role in ensuring that injured employees do not face unnecessary financial hardships during their recovery. These policies strive to make the post-injury process as seamless as possible for all parties involved, prioritizing the livelihoods and well-being of employees.
When unforeseen lapses in coverage occur or when insurance brokers refuse to cover workplace injuries, failure to comply with state laws can lead to serious criminal offenses.
If a business is found non-compliant, the Division of Labor Standards (DLSE) can issue a stop order, temporarily halting operations until proper coverage is reinstated. The penalties for non-compliance vary by state, but can result in fines of up to $10,000, imprisonment for up to 60 days, and even additional fines per employee, potentially reaching a maximum of $100,000.
In addition to protecting employees, these policies are also designed to safeguard businesses, preventing employees from pursuing further legal action after accepting compensation from the fund, and providing a strong defense against fraudulent claims.
Maintaining compliance is not only a legal necessity but a fundamental aspect of responsible business management.
For more information about Workers’ Compensation and employers’ liability, check out our Guide to Business Insurance Policies.
How Do Businesses Benefit From Workers’ Comp?
State laws typically require companies to hold workers’ comp policies, but there are other potential benefits to a business beyond compliance, including:
A policy can help your workers get the care they need so they can return to their roles or find new ones.
It can also limit your company’s liability in lawsuits resulting from workplace injuries or illnesses. When employees receive compensation, they generally forfeit their rights to sue. Without coverage, an employee may file a lawsuit to recoup medical expenses and lost income.
Protect Business Losses
Workers’ comp funds make it impossible for employees to double dip in injury cases. Once they accept payment from the fund, they aren’t allowed to file a private suit, as well. If your insurance is up to date, it provides a huge buffer against bogus claims.
Safeguard Employee Livelihoods
Its main purpose is to ensure the injured party doesn’t have to jump through hoops to get their bills paid, so businesses are penalized for late payments. Even if the injury and incident in question may have been quite painful, insurance strives to make the aftermath as painless as possible.
Who Needs Workers’ Comp?
While most businesses are required to carry a policy, workers’ comp is particularly important if workers perform tasks that increase their risk of sprains and strains, which account for more than 30 percent of workplace injuries.
Other causes also include manual labor and moving materials. Slips and falls are the second most common cause of cases, and these can occur in virtually any industry. There are special laws and regulations for government employees, as well as those working in certain industries like railroads.
Many states require employers to provide coverage for full-time employees. However, some exclusions may apply, especially for:
- Casual Workers
- Employees Working on Commission
- Family Members
- Part-Time Workers
- Real Estate Agents
- Insurance Agents
- Business Owners
Every U.S. state, except for Texas, mandates that businesses purchase some form of workers’ comp insurance.
What It Covers
Just as individual insurance policies vary by contract, coverage also depends on the policy terms. Coverage areas might include:
- Workplace Injuries
- Medical Care
- Lost Wages
- Funeral Expenses
- Injuries From Violence, Terrorism & Natural Disasters
- Illnesses Resulting From Workplace Exposures
What It Doesn’t Cover
That being said, it doesn’t safeguard you from all potential issues, such as employee lawsuits for:
- Gross Negligence
- Malicious Intent
- Wrongful Termination
- Failure to Promote
- Intentional Injury
- Emotional Injury
- Injury Resulting From a Fight Caused by an Employee
- Injury Occurring During Commute or Intoxication
What Is a Workers’ Comp Settlement?
After an injury, the employee must typically report the incident within 72 hours to two years to claim benefits and reach a settlement.
These repayments are usually awarded either in one lump sum or a structured payment plan. Businesses should take the following steps between the incident and settling:
- Provide Prompt Medical Attention: Ensure the employee receives proper medical care for the injury.
- Conduct an Investigation: Audit the incident for potential safety issues and make any necessary improvements.
- File a Claim: File the claim to your workers’ comp board to process benefits.
Where to Get Insurance
Depending on your state, you can get coverage from either an insurance company or a state-run agency.
- Private companies frequently offer more competitive rates and enhanced customer service.
- State-funded programs may be able to provide coverage if a private company rejects your business.
- Competitive state-funded workers’ comp acts as an alternative to private carriers.
What Are the Monopolistic Work Comp States?
In several states, businesses must purchase insurance through a monopolistic state program, which means they cannot shop around for other policy options.
Ohio, Wyoming, Washington, and North Dakota are monopolistic states because they prevent private insurers from selling coverage. If residents of these states wish to purchase a policy, they must do so from a state-operated insurance fund.
Note that not all policies apply across state lines, so if you operate in multiple states, you may need several policies.
Do I Need Coverage For Contractors?
State laws dictate whether you’re obligated to provide coverage for contractors. To avoid costly fines, be sure to verify if your contractors qualify as employees.
Laws vary between states and do not always follow the same guidelines as the Internal Revenue Service (IRS), so pay careful attention to the wording to ensure compliance.
If your contractors are not covered by your policy, limit your exposure by contractually requiring them to hold their own coverage.
Nearly all outside vendors should have policies in place to protect their employees. Request certificates of insurance (COIs) for these to ensure everything is up to date and you’re protected if one of their employees is injured while working for you.
bcs Knows Workers’ Comp
Having coverage ensures your employees are financially supported to get the care they need.
Whether a severe instance of negligence or a simple clerical oversight, lapses in coverage jeopardize safety and compliance—and it’s in your best interest to avoid them at all costs.
So, while you’re focused on growing your business, bcs handles all aspects of workers’ comp for you.
Our skilled auditors routinely examine insurance paperwork to ensure it’s up to date, simplify document tracking and storage with an easy-to-use app, and so much more.
Yes, accidents happen—and if real life is indicative of anything, it’s that disaster can strike at the most inopportune moments.
That’s why bcs's full-service solution ensures you’re prepared for the worst.
bcs is a leading full- and self-service vendor management solution to simplify your document tracking, maintenance, and all your essential third-party processes. To learn more about maintaining compliance and safety with bcs, contact us today or schedule a demo.
Learn from the pros about risk-mitigation, document tracking, and more, with expert articles from BCS.