Understanding Workers' Compensation to Prepare for Employees' Claims
There's an old saying – accidents happen. No matter how many safety measures you've put in place, employees will invariably get sick or injured on the job. Then it's time for you to engage the workers' compensation claims process. Are you ready?
What is workers' comp coverage?
Workers' compensation insurance generally covers employees' medical expenses and rehabilitation services following a workplace-related injury or illness. It may also replace employees' wages if they are unable to work while recovering.
In exchange for receiving these benefits, affected employees, in most cases, waive the right to sue their employer over the incident.
Do you need workers' comp insurance?
Chances are – yes!
"Every state has certain regulations and laws on when workers' compensation insurance is required," says Kyle McDaniel, vice president of sales and licensed workers' compensation agent at Automatic Data Processing Insurance Agency, Inc. (ADPIA®), an affiliate of ADP®.
But while nearly every state requires business owners to carry workers' comp coverage, regulations vary from state to state. "Fully understanding state guidelines helps to protect your business and employees when evaluating coverage," adds McDaniel.
California, for instance, requires insurance even if you only have one employee. Coverage in Florida is mandatory if you have at least four employees and aren't in construction (where coverage is needed with your first employee) or a contractor. In Alaska, some businesses are allowed to self-insure and avoid purchasing insurance if the state approves. Texas, on the other hand, does not require workers' comp insurance at all.
Know the workers' comp claims process.
First things first. Even before a workers' compensation claim appears on your radar, educate your employees about workers' comp. Inform them about workers' compensation and tell them that you have a policy that covers them. "Communication is key with your employees," says McDaniel.
To help facilitate this in your business:
1. Post notices around the workplace (it's the law) to tell employees about filing claims.
2. If any employee reports that he or she was injured or becomes ill as a result of something in the workplace, you must provide them with a workers' comp claim form and submit their completed form to the insurance carrier that provides your workers' comp policy.
3. Check with your state's Department of Labor to determine if the employee must also file a claim separately and if any state-regulated time limits apply to making a filing.
When the claim is approved, the insurance company will pay the applicable benefits.
Making your insurance payments
Many businesses typically make estimated insurance payments on their premiums throughout the policy year. The cost of policies basically depends on the number of employees covered and how each is classified based on the type of work they perform. For example, it is more expensive to purchase coverage for a construction worker than for a receptionist.
To help businesses improve their cash flow, some payroll processing companies that offer tax filing services integrate workers' compensation premiums with payroll. Payments are made directly to the insurance carrier each time you run a payroll. Upfront, binder deposits are eliminated and actual payroll data – not estimates – is used to calculate premiums.1 This minimizes a company needing to make expensive adjustments at the year-end audit.2
How do insurance carriers determine workers' comp insurance risk?
According to one insurance estimate, workers' compensation insurance costs average about $1.00 for every $100 in payroll. However, for high-risk employees in New York, for instance, the average cost jumps to nearly $30 per $100 in payroll. In 2021, "slips and falls" made up about 27 percent of workers' comp claims.
Avoid claims non-compliance
1. If the law in your state requires you to have workers' compensation, get a policy. Noncompliance can mean fines and even jail time. If an employee encounters a problem that could have been covered by workers' compensation, instead of filing a workers' comp claim, the business owner may be responsible for workers' expenses and even be sued by the employee.
2. Check with your state department of labor to stay up-to-date with the latest workers' comp coverage requirements – including the claims-filing process. Changes may impact when claims benefits are paid out.
3. File employee workers' compensation claims expeditiously to help ensure affected employees receive their benefits in a timely way.
ADPIA's McDaniel argues that being prepared significantly helps businesses to stay compliant.
"Hopefully, your employees will stay healthy and never have to be assisted by workers' compensation. When claims are made, understanding workers' compensation and how the claims-filing process works can protect your business and your employees," he concludes.
To learn more about protecting your employees and your business, check out ADP® affiliate, Automatic Data Processing Insurance Agency, Inc. (ADPIA®), for Workers' Compensation Insurance.
1 While premium deposits may be eliminated with most carriers, mandatory state assessment fees may be required in some states.
2 This does not eliminate the audit.
Automatic Data Processing Insurance Agency, Inc. (ADPIA) is an affiliate of ADP, Inc. All insurance products will be offered and sold only through ADPIA, its licensed agents or its licensed insurance partners; One ADP Blvd. Roseland, NJ 07068. CA license #0D04044. Licensed in 50 states. Certain services may not be available in all states with all carriers. Some carriers may charge an additional fee for services. This information is not intended as tax or legal advice. If you have any questions, contact a tax or legal professional. ADP, the ADP logo and ADPIA are registered trademarks of ADP, Inc. Copyright © 2023 ADP, Inc. All rights reserved.