Workers Compensation Basics
Back a few years ago (2017) I created a blog post featuring the basics of Workers Compensation Insurance. Since then we have more clients hiring employees and therefore more questions about Workers Compensation Insurance
Workers Compensation – Where to Start
First off, identify your states workers compensation requirements. Hiring anyone, for any period of time, can trigger a need for coverage but this can vary by state.
For example, businesses operating in Texas and Florida may not have to place coverage immediately. Texas has a unique system and Florida may waive the need for coverage for a small number of employees.
Next, assess the risk. Even states that offer leeway for coverage, may not absolve your company of all risk. Limitations may exist, go in with your eyes open. Having workers compensation insurance in place is the safest bet regardless of state requirements.
Owners may either be included or excluded from coverage. State rules will vary and pay close attention to the type of corporate entity as well. Rules may vary for corporations, partnerships and LLC’s.
Last, if your company hires independent contractors and I mean true independents, coverage typically is unnecessary. 1099’s do not make an independent and independent. Control of work, schedules, ability to work for others and other factors weigh heavy on the determination of an independent contractor.
Key factors that determine premium:
- Location – State
- Annual Payroll
- Job Classification
- State Assessments
Rates charged for job duties vary by state and position. For example, working a bottling line is different than a social media account position. Rates may vary by state for the same positions. Job duties should match a particular workers compensation classification. It is not always a perfect fit. Each classification has a rate $100 of remuneration or payroll.
States charge assessments and once again these vary by state. Charges for terrorism may also apply.
Workers Compensation premium is subject to premium audit. This means the premium paid during the policy year is only an estimate. Premium audits will occur soon after policy expiration to determine the final premium. The audit verifies payroll and classifications used. When payroll is higher than estimated, a bill is sent for the balance. If lower, a credit will be issued. This process continues each year.
It is very important to keep audits in mind especially for any swings in compensation, change in job classifications and locations where employees work. For example, if your company manufactured its own product but later decided to use a copacker, continuing payroll in an existing manufacturing class would not be a wise use of funds as it is more expensive than classes for office work.
Payroll billing is very popular these days and marketed heavily by payroll companies. It is convenient for many small employers. The benefits included ease of use, even cash flow and predictable premium audits. Employers with low risk classifications and stable payroll do not benefit as much from this option.
Administrative work for many employers is minimal and premium audits for stable low risk employees are straightforward. If fees are charged for payroll billing you may consider doing it yourself.
Payroll billing can also be paired with your insurance agent as well. Many insurance companies will let you have the best of both worlds so don’t just jump at the payroll companies marketing.
Another consideration is Certificates of Insurance for vendors of your product. We find our clients forget they need a certificate from us for General Liability and one from their payroll company to comply with vendor contracts that require workers compensation.
Lastly, for those with Excess or Umbrella insurance if your coverage is not under “one roof” your workers compensation policy (more specifically the employer’s liability portion of that policy) may be left out of the extra coverage.
Wrap it Up
We hope this article has been helpful in understanding workers compensation insurance. If you have questions about your situation, give us a call!