Workers’ compensation benefits for injured employees are paid based on a medical record review and other formalities, and though all business owners are aware of the importance of this insurance, there are complexities involved that makes it difficult to fully understand this program. Each U.S state has its own mandates for their workers’ compensation program. The minimum and maximum weekly rate benefits, and how to calculate that for payment to an injured employee are determined by individual state laws. These benefits that do not completely replace an injured employee’s salary are not taxable by law. Workers who sustain a permanent disability following a workplace injury may be entitled to a permanent disability settlement and medical care. Since medical records are important to evaluate the disability, the service of medical record retrieval companies becomes very significant.
In any workers’ comp policy premium calculation, three factors are important.
- Classification code rate
- Experience modification
Premium = Classification Code Rate X Experience Modification X Payroll (per $100)
- Job classification codes or class codes signify the type of business and the jobs workers perform. Employers with similar risks/hazards/exposures are assigned a class code and each class code has a corresponding workers’ compensation rate that varies across the states. This rate is based on every hundred dollars of payroll.
- MOD or experience modification rate is a number that represents your claim history. Each business has an experience modifier and the average MOD is set at 1.00. The MOD may go below 1.00 for employers with a clean claim history. If a business has had a few claims, the experience MOD will go above 1.00 and this will increase their insurance premium. Therefore, it is important that employers introduce appropriate measures in the workplace to reduce the chance of employees getting hurt or sick on the job.
- Payroll is the next important factor because workers’ comp premiums are based primarily off the amount of payroll the business runs annually. The employer will provide an estimated amount of payroll to the insurance company to calculate their premium.
Another important consideration is whether workers’ compensation insurance is required for all businesses. Yes, for most businesses in the USA. Regardless of the number of employees, most companies must have this insurance for their workers. Workers’ compensation requirements vary from one state to another. Here are some states that have exceptions to the common rule that workers’ compensation is always required.
|Alabama: Required after the fourth employee.|
|Florida: Required after the fourth employee. However, construction businesses are required to always carry the insurance.|
|Georgia: Required after the third employee.|
|Michigan: Required once one employee is hired and works 35 hours a week for at least 13 weeks during the previous 52 weeks. Or it is required after the third employee.|
|Mississippi: Required after the fifth employee.|
|Missouri: Required after the fifth employee. However, contractors with just one employee must be covered.|
|New Mexico: Required after the third employee. However, construction businesses are required to always carry the insurance.|
|North Carolina: Required after the third employee.|
|South Carolina: Required after the fourth employee.|
|Tennessee: Required after the fifth employee, unless in the construction business or trades. These businesses are always required to carry insurance; in fact, owners are also required to carry coverage on themselves or be listed on the exemption registry.|
|Virginia: Required after the third employee.|
|Wisconsin: Required after the third employee.|
|Texas: The insurance is not required.|
A company that fails to provide adequate workers’ comp coverage is at risk of lawsuits and penalties, and increased costs. In the absence of workers’ compensation insurance, an employee can sue the employer for a job-related injury or illness. Apart from providing coverage for all medical and indemnity costs including lost wages, the employer will also have to cover the legal fees incurred.
Then, there are state penalties. If your state requires you to provide workers’ compensation insurance, and you fail to obtain coverage, hefty penalties may be involved. Apart from this, the Workers’ Compensation Board could impose other penalties for non-compliance, and this may vary from one state to another. Therefore, obtaining coverage is always the better option for employers in the United States to stay compliant with applicable regulations, as well as benefit from employee satisfaction.