First – I would love it if we could get out of the habit of calling this work-man’s compensation. It’s actually been workers compensation for years and years – but I still sometimes hear the old phrase hanging on for dear life.
OK, enough of that particular rant. Back to workers compensation. What is it, do you have to have it, and if so – why?
Workers Compensation is a type of insurance coverage that takes care of the costs associated with a work related injury or illness.
For example – Sandy is sitting there, at her desk, working away. Then – all of a sudden, one of the wheels on her chair falls off, and Sandy finds herself smack on the floor. (By the way – if you’re wondering – yes, I’ve been Sandy before…it was not fun). So, there’s Sandy, hitting the floor with a thud, and probably landing on her coccyx. And yes, I just went all medical term on you there.
She probably jarred her spine, and her neck might even be out of whack. In a phrase – Sandy hurt herself.
So, you’re thinking – wouldn’t my business liability insurance take care of this. Well no, because Sandy is an employee, and she hurt herself in the course of doing her work. And in addition to possible medical bills, Sandy will probably have to spend some time off work trying to mend – so she’ll have lost wages too.
And that’s where workers compensation comes in. It covers both medical expenses and lost wages due to a work related injury or illness.
All California employers are required to carry workers compensation insurance. I’ll say that again – all California employers are required to carry workers compensation insurance. If you have an employee – even one employee – you have to have workers comp. There isn’t a work around, there aren’t any exceptions – if the worker is a worker, and not an owner, then you have to carry workers comp insurance on them. If they’re a family member – you need workers comp. If you hired them to work for you temporarily – you need workers comp. If they work offsite – you need workers comp. In fact, if there isn’t a ‘site’ at all – you still need workers comp.
I’m serious – the authorities will not be accommodating on this. Carry workers comp or get fined, and maybe sued. Those are the choices. What can I say – I don’t like the odds.
In fact, in California, if you don’t carry workers compensation insurance it’s considered a criminal offense. That’s right – criminal. That means you could be fined, and even go to jail. Nope, I don’t like the odds at all.
Now, for those of you outside of California – your requirements may be different. For instance in Alabama you don’t need workers comp if you have less than 5 employees. So, definitely check with your state’s labor department.
“…If you have an employee – even one employee – you have to have workers comp. There isn’t a work around, there aren’t any exceptions – if the worker is a worker, and not an owner, then you have to carry workers comp insurance on them.“
So, how do you get it, how much will it cost, and what do you need to do once you have it. Well, you get it by talking to your business insurance broker. Now, if you’re with a big, national payroll provider, they may bundle it into your services – but it’s far better to talk to your broker. They won’t charge you anything, and they’ll search for the best rates available for your particular situation – instead of throwing you into a box, and simply charging you the standard rate.
Which brings me to cost. Workers compensation insurance is priced based on a number of things. First off, what are the job responsibilities in your company. And that makes sense. The rate for someone who’s a salesperson, always on the go, out in the world taking planes, trains and automobiles – well that rate will be a lot higher than the rate for the receptionist who comes in, sits at the same desk every day, and doesn’t have to drive down the freeway to a different county to do his job.
So, job responsibilities and title are one factor. Another is the person’s wage rate. Again, this makes sense. If workers comp insurance covers not only medical bills but lost wages – the higher the wages, the more the insurance company may have to pay out. And since in California, you are entitled to two-thirds of your pretax gross wages – it can quickly add up.
The location of your business can also play a role in setting your workers comp rate. It has to do with lawsuits, and the likelihood you will be involved in one. An employer in Los Angeles, CA is more likely to get sued than an employer in Lodi, CA.
And the final factor is your company’s experience. It’s called an Ex-Mod or Experience Modification rate. This speaks to how many accidents or workers comp cases you have had in the past. Basically the insurance company is trying to figure out if you’re a good risk. The more cases, the worse the risk.
There are a few other items insurance companies consider – but these are by far the biggest factors influencing your premium rates.
So, you’ve signed on the dotted line, and you are now the proud owner of a brand new workers comp insurance policy. Now what do you do? Just wait for someone to get hurt and then everything starts? Well, not quite.
First there are a number of notices you have to give your employees to let them know you’re covered. Generally, you’ll get what’s called an Administrative Guide Book with your policy. It will give you lots of great information like how to file a claim, the forms you’ll need, information on clinics in your area that are part of the insurance etc.
You’ll also need to fill out the workers comp section of your workplace posters, and the wage theft notice that’s part of the new hire package. If you don’t know what I’m talking about, check out the episode on what goes in the new hire package.
So, one of your employees just told you that she’s pregnant. Feeling overwhelmed, with no idea where to start? After all, HR just got dumped on your plate. It’s not your zone of genius, and you don’t want it to be.
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Now, if you find yourself in the unfortunate situation where an employee has hurt themselves, task #1 is to get them medical help if they need it. Of course, if it’s an urgent or emerging situation, call 911 immediately. But if they’re well enough to get around, and need or want to be seen by a doctor, that’s where the MPN or Medical Provider Network comes in. An MPN is a list of doctors and clinics that are part of the worker’s comp network. So you can send your employee to the closest one, and they can get the help they need.
Depending on the state, your employee may be required to see a workers comp doctor, vs. their own physician. In some states, the employee has the option of designating their personal doctor for workers comp situations in advance. It’s called a pre-designation; and we have it in California. In fact, the pre-designation form is part of the new hire package documents. So, be sure to check the guidelines for your state.
Then, immediately begin the workers comp filing process. Again, in California that involves giving the employee information on the insurance company and policy, gathering information on what happened, and filing a claim with the insurance company. Some of these pieces have time deadlines attached to them, so be sure you know what you need to do, and how much time you have to do it. And don’t forget – the Administrative Guide can really help you out with this – it usually includes a step by step overview of your responsibilities.
Once you’ve filed, let the insurance company take it from there. They’ll deal directly with the employee on upcoming doctor’s visits and next steps etc. Your HR rep should also stay in touch with the insurance representative so they are aware of where the case is in the process, and any work restrictions that may be put in place.
Another thing to keep in mind – when a case is opened with the insurance company they usually put a specific amount of money aside for paying that claim. How much goes into reserves is determined by the claims adjuster. The reason you need to stay on top of the reserves is because it can impact your Experience Modification, and that will impact your premium rate. So, it’s a good idea to check in on a regular basis to be sure there aren’t excess funds in the reserves for closed cases.
So, make sure you have workers compensation insurance…..and send Sandy a get well soon card.