Workers’ Compensation Insurance

What is workers’ compensation insurance?

Workers compensation insurance assures that injured workers get medical care and compensation for a portion of the income they lose following an accident or illness that resulted in the course and scope of their job responsibilities. If the accident or injury results in the employee’s death, workers compensation provides death benefits for the worker’s dependents.

Do I have to buy workers’ compensation insurance?

In most states sole proprietors and partnerships are not required to purchase workers compensation for themselves; however, they are required to provide coverage for their employees. The number of employees that triggers mandatory insurance varies by state as does the requirement to provide workers’ comp coverage for employees paid solely on commission.

In some states independent contractors are not considered to be your employees. However, with regards to workers comp insurance, most states view an uninsured contractor or subcontractor or employees of an uninsured subcontractor as your employee. This means you could be liable if he or she were to be injured while working for you. To avoid this, it is important for you to obtain proof of workers’ compensation, also known as a Certificate of Insurance, from your subcontractors prior to the commencement of any job.

How is workers’ compensation insurance calculated?

Workers compensation is calculated on the basis of your payroll. There is also a specific rate, determined by the classification codes of your employees and set forth by the Workers Compensation Commission. The rate is multiplied by each $100 of your payroll. The policy is audited at the end of each term to determine the exact amount of payroll used during the policy term. This makes it very important to keep accurate records of each employee’s job duties so their payroll can be placed into the correct classification code.

What is an Experience Modification Factor?

Your loss history or claims experience is calculated into what is called an Experience Modification Factor. This is a numeric number that represents your company’s loss history with 1.00 being the median number. Once the payroll has been multiplied by the classification rate it is then multiplied by your Experience Modification Factor. If your loss history is good then your E-Mod, as it is also called, will cause your premium to be less than the standard rate. Likewise, if your loss history is not so good and your E-Mod is say 1.25 then your worker’s compensation premium will be 1.25% higher than the normal rate. It is very important for both the employee and the employer to prevent losses and insure lower costs for all involved.

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