Guide to Workers’ Compensation Insurance

If you own a business, you’re no doubt familiar with workers’ compensation insurance. It’s a concept that began early in American history, but didn’t take effect until 1908 with the Federal Employer’s Liability Act. The law was enacted due to the influence of President Theodore Roosevelt, who felt it was ‘an outrage’ that an employee was expected to pay for their own care after suffering an injury on the job. The initial law only covered some Federal employees, but it was a start, and since then workman’s comp has become a synonym for fair treatment of employees.

Injured on the Job?

The reason workman’s comp came into existence was to protect workers who were injured while involved in job related activities. Prior to the 1908 law, the only protection a worker had was provided through the benevolence of an individual employer. Needless to say, a great many people suffered financial difficulties after being injured, because their employer simply said ‘tough luck,’ and hired someone else to do their job. Today workers’ compensation insurance is mandated by nearly every state government, so workers have some financial protection when they’re accidentally injured.

No Liability

An employee is eligible for workman’s comp if they are injured on the job and no liability is attached. In other words, a worker can collect the insurance from the employers company as long as they don’t claim the employer is liable for the accident. It is essentially a trade-off. The worker agrees to accept the insurance payments and the employer supplies the coverage without charge to the worker. This makes it unnecessary for the worker to sue for wages lost, and allows them to maintain some semblance of normality until they’re able to return to work.

Injury Exceptions

There are a few exceptions to the workman’s comp laws. One of the major ones is if the injury was the result of something that wasn’t work related, such as ‘horsing around.’ There are other exceptions whereby an employer’s insurance company wouldn’t be forced to pay workers’ compensation. If a worker is injured while under the influence of illegal drugs, or they are intoxicated while on the job, the company would be exempt from paying workers’ compensation insurance.

Employer Exemptions

For the most part any employer in every state except Texas is required to carry workers’ compensation insurance. Although some employers in Texas do carry the insurance, they do so voluntarily. In each of the other 49 states an employer needs to offer workers’ comp. There are a few exemptions. In some states when an employer has less than five employees they needn’t carry the insurance. If you’re self employed there is also no need for workers’ comp. You can carry the insurance if you so desire, but you can’t be forced to. The agricultural industry is not required to carry workers’ comp, nor is the real estate industry. If a company hires an independent contractor they aren’t required to offer them workers’ comp.

How Rates Are Figured

When you begin a business you must take out workers’ compensation insurance if the law requires it. It’s all part of your business insurance package. Your rates will be figured based upon industry standards, which means the insurance company will look up the claims figures of businesses similar to yours. Typically construction and roofing businesses will have the highest percentage of claims, because they are inherently dangerous enterprises. The rates a company pays for workers’ compensation insurance will decrease according to the recorded number of claims, and is generally in line with how dangerous the job is considered to be. As your business builds up its own history of claims over a period of time, your rates will be judged according to your own claims record. Therefore it is to your advantage to take as many safety precautions as possible. The fewer the claims, the lower your premiums will be.