US workers file around 4.9 million workers’ comp claims each year. Yet, to file for workers’ comp, their employers have to have this type of insurance coverage.
Workers’ comp insurance benefits are not a requirement in every state, though.
Additionally, there are certain types of employers that can get an exemption for workers’ comp.
Are you an employer or employee wondering about workers’ compensation insurance and its benefits?
If so, keep reading this guide because we are going over everything you need to know.
What Is Workers’ Comp Insurance?
Workers’ comp is a type of insurance business owners need to get to cover workplace injuries and illnesses. Employers pay a monthly premium for insurance, and employees get coverage when these events occur.
This type of insurance is also helpful for lowering the cost of wrongful death lawsuits.
If a deceased employee’s family files a lawsuit, the business owner’s workers comp insurance provider will cover associated court and lawyer fees.
Find extra resources and information about wrongful death lawsuits in Texas at the link.
Not all businesses need workers’ comp insurance. Not all states require businesses to have a workers’ comp insurance plan.
Still, there are some important benefits to having coverage, which we will discuss in a moment.
What Does Workers’ Comp Insurance Cover?
Workers’ comp insurance covers medical bills, lost wages, and rehabilitation needs when an employee gets injured on the job.
This type of insurance also covers settlements and judgments in case of a wrongful death lawsuit.
More commonly, employers rely on workers’ comp to cover employees who get sick or injured on the job. Their insurer will pay for the employee’s medical expenses. If the injury leads to a disability, insurers also pay lost wages.
Workers’ compensation also provides coverage if a workplace injury or illness causes an employee’s fatality.
The business owner’s benefits may cover things like funeral costs, lifetime income benefits, and more.
What Does Workers’ Comp Insurance Not Cover?
Workers comp does not cover employees who caused their own injuries or who got injured because they were intoxicated. It does not cover injuries at work-sponsored events as long as participation is voluntary.
Also, say an employee injures another employee at work. If the injury occurs due to personal reasons, workers’ comp will not cover it.
The injury has to be directly related to the job or workplace to fall under workers’ comp.
Finally, most states do not require workers’ comp providers to cover injuries due to natural disasters. If a tornado or hurricane hits the workplace, workers’ comp will not cover any injuries employees may sustain.
Who Needs Workers’ Comp Insurance?
Businesses that have employees generally need workers’ comp, though it depends on the state. Some states only require certain types of businesses or businesses with a specific number of employees to carry this type of insurance.
Texas is the only state that does not require private companies to obtain workers’ comp. Public employers do need this type of insurance. Private companies that contract with public employers also need workers’ comp.
States with the strictest workers’ comp laws are California, Illinois, Pennsylvania, and New York. All businesses must have workers’ comp in these states. If they do not, they are subject to thousands of dollars in fines.
For example, in California, business owners can get jail time for not offering workers’ comp. They may also receive a fine of up to $10,000. In Pennsylvania, not providing workers’ comp is a third-degree felony.
It is also worth noting that some states require businesses to purchase workers’ comp from the state government. These states include Washington, Ohio, North Dakota, and Wyoming.
Who Is Exempt from Workers’ Compensation Insurance?
Businesses that are exempt from getting workers’ comp insurance vary by state. Again, in Texas, workers’ comp coverage is only mandatory for government employers and their business contractors.
In most states, sole proprietors are exempted from workers’ comp requirements. These individuals run their own businesses. However, they do not have employees.
Some independent contractors and LLC owners may also get exemptions in certain states. Other businesses that may be able to apply for a workers’ comp exemption include:
- Agricultural companies
- Some government businesses
- Real estate agencies
- Volunteer organizations
In most states, the determining factor for whether a business needs workers’ comp is the number of people it employs. The most common requirement is that any business with one or more employees needs workers’ comp.
There are some exceptions to this rule. In Alabama, businesses can have up to four employees before they must get workers’ comp insurance. Arkansas is similar, but the threshold is two or fewer workers.
How Much Is Workers’ Comp Insurance?
The exact cost of workers’ comp insurance varies by state. According to The Hartford, the average annual cost for workers’ comp is $840 per year or $70 per month. Factors affecting the exact cost include:
- Number of employees
- Job risk level
- Workers’ comp class codes
The more employees a business has, the higher workers’ comp insurance will cost. Insurance providers use business payrolls to calculate premiums. They usually calculate premiums based on every $100 worth of payroll.
The higher a job role’s risk, the more it costs to cover employees. Insurers lose when they have to pay out. So, they offset their own risk by charging higher monthly costs for workers’ comp insurance.
Workers’ comp class codes come from the National Council on Compensation Insurance (NCCI). These class codes also correspond to the job’s risk level. Most insurers use these codes when determining premiums.
What Are the Benefits of Workers’ Comp Insurance for Employers?
There are tons of benefits to getting workers’ compensation insurance for businesses, including protection from employee lawsuits. But not all states require every single business to get this type of insurance.
So, employers may be tempted to skip out on this type of insurance coverage. Here are the top reasons why we recommend that employers think again.
Avoid Costly Lawsuits
The median settlement award in personal injury cases is $31,000. Businesses that do not carry workers’ comp policies in Texas must pay the entire settlement award out of pocket.
Businesses outside of Texas may be exempt from workplace injury suits. Yet, families of deceased employees can still bring wrongful death lawsuits if a business is to blame.
Wrongful death settlement amounts are even higher.
With insurance coverage, businesses do not have to stress about lawsuits. Employees will get the compensation they deserve. In the rare case that a lawsuit does happen, the insurance provider will cover settlement amounts.
Save Money on Medical Expenses
Healthcare costs are on the rise. Businesses that get hit with significant employee medical expenses could risk significant losses.
Owners must pay the full, real cost of all medical expenses for the employee.
This is an even bigger issue for companies with high-risk job roles. The larger the company, the more employees it needs to run.
That offers a higher chance that businesses will have to pay out on major workplace injury claims.
Workers’ comp insurance means businesses get help paying for these costs. The insurance provider will cover a portion of the cost of an employee’s medical expenses.
Cut Lost Wage Costs
Lost wages are another place where business owners lose big in workplace injury cases. This happens when an employee must take time off from work to recover from an injury or illness.
Employees can also get lost income benefits for disabilities developed due to illness or injury. Families of employees who receive fatal injuries on the job can also collect lost income benefits.
Luckily, workers’ comp insurers can help cover these costs. These professionals also know tactics to ensure the employee and/or their family gets what they need and nothing more.
Attract Higher-Quality Talent
The US is still in the middle of a talent war. Attracting the best employees is easier when companies offer the right benefits packages. One benefit most modern employees see as a non-negotiable is workers’ comp.
This is especially true in high-risk roles like construction, logging, roofing, ironworking, and truck driving. High-quality workers will not work for a company that does not offset the risk of their job roles.
Offering workers’ comp benefits even when it is not a requirement can help employers attract more talent. Business owners in Texas should especially consider this since it will set them apart from the competition.
Adhere to State Laws
Texas and Oklahoma are two of the only states in the nation with lax workers’ comp laws. Businesses located in any state outside of these two must have workers’ comp to abide by local laws.
Businesses without workers’ comp in Oklahoma could soon have to buy workers’ comp insurance, too. State judges have ruled that not having workers’ comp is unconstitutional. Texas could potentially follow in Oklahoma’s lead.
Obtaining workers’ comp coverage is important for complying with state laws. As we have mentioned, some states consider it a criminal offense. Violations can result in thousands of dollars in fines and even jail time.
What Are the Benefits of Workers’ Insurance for Employees?
Workers’ comp insurance is not just good for businesses. It also provides a safety net for employees. The best part is that employees can receive benefits without having to pay into the workers’ comp policy.
Keep reading to learn the top five ways this type of insurance benefits employees.
Get Coverage for Medical Expenses
The types of injuries workers’ comp covers will always require medical attention. In some cases, these injuries may even lead to future complications. They add to the cost of care even more.
This is one of the main areas where workers’ comp insurance can help. Employers pay into the policy to ensure employees’ medical expenses are paid for if they get injured on the job.
Obtain Temporary Disability Benefits
Sometimes, a workplace injury can lead to a temporary disability. This may prevent employees from doing their jobs for a time. Without working, these individuals also do not receive income to support themselves and their families.
Workers’ comp can help pay back employees while they are in recovery. Of course, the recovery has to come as a direct result of the injury obtained.
Qualify for Permanent Disability Benefits
Sadly, some workplace injuries result in disabilities that last for life. The employee may never be able to do the same job again. In some cases, they may not be able to work at all.
Workers’ comp providers help pay for lost income. No matter how long an employee has a disability, they can receive payments to help cover their day-to-day expenses.
Have Rehabilitative Costs Covered
In some cases, the employee may not have to have a permanent disability. If they attend rehabilitation, they may be able to recover their abilities. Rehab services help people get back on their feet after serious injuries.
Luckily, workers’ comp insurance covers these types of services, too. The employee will not have to pay a single dollar out of pocket.
Ensure Families Get Death Benefits
Sadly, some workplace injuries result in death. When this happens, the main breadwinner can’t contribute to the household income anymore. This can be detrimental to their families.
With workers’ comp, surviving family members receive payment. Often, these payments are for life.
Get More Information About Insurance Benefits
Workers’ comp insurance protects employers and their employees when injuries happen. Employers do not have to worry about losing money.
And employees can recover in peace without worrying about lost income. Did you enjoy learning about employee insurance in this guide? If so, you’ll love what else we have to offer.
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