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Workers’ Comp FAQ

What is workers’ compensation insurance and how does it work?

Workers’ compensation insurance provides businesses coverage for statutory obligations relating to employee expenses that are a direct result of on-the-job injuries and/or illnesses. State laws establish comprehensive and specific benefits that must be provided to employees who suffer a work-related injury or illness. Usually, businesses obtain workers’ compensation protection from one of four sources: private insurance carriers, state insurance funds, self-insurance or self-insured groups. While benefits may differ from state to state, workers’ compensation can include weekly payments in place of wages, compensation for economic loss (past and future), reimbursement or payment of medical expenses, and benefits payable to the dependents of workers killed on the job or during the course of employment. Workers’ compensation insurance policies generally do not include damages for pain and suffering or punitive damages for employer negligence. Workers’ compensation laws generally provide no-fault benefits to employees. This means injured workers can, in most cases, collect workers’ compensation benefits regardless of whether they caused their own injury. The laws also provide the predictability of an exclusive remedy to businesses, meaning injured workers are provided defined benefits as compensation for their injury.

Do all businesses need workers’ compensation insurance?

The short answer to this question is “yes.” Workers’ compensation insurance is required by every state in the U.S. except Texas, where businesses can opt out. However, even absent a legal requirement, every smart business owner should have it. That is because, insured or not, a business may be responsible for an on-the-job injury, including injuries that take place entering or leaving a job site. Each state has different workers’ compensation requirements, so it is important to check the laws in your state to be sure you are in compliance. Some states define “workers” to include volunteers. Other states allow businesses of a certain size to be self-insured. There are also exemptions and requirements that vary from state to state.

What happens if a business goes without workers’ compensation insurance?

Failure to meet a workers’ compensation coverage requirement could leave a business exposed to the full costs of workers’ compensation claims and/or regulatory penalties. Both could be severe.

How is workers’ compensation premium determined?

Workers’ compensation premium is determined by a formula that considers the class of business, accident history and total payroll. Upon proper classification and assessment of historical losses, a business is assigned an experience modification rate that takes all of that information into account. This rate is then multiplied by total payroll to determine premium.

Where can I get workers’ compensation insurance?

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North Dakota, Ohio, Washington and Wyoming require businesses to get coverage exclusively through state-operated funds. These are commonly called “monopolistic state funds.” A business cannot meet its workers’ compensation obligations in these jurisdictions with a policy from an insurance company.