How Does Workers' Compensation Work?

Workers' compensation helps cover the expenses of work-related injuries and illnesses, including medical care and a portion of lost wages. 

Many business owners get workers’ compensation insurance because they are required to, without really understanding what it covers and how the claim process works. This can make it harder for both the employer and employee to navigate the claims process.  

To get the most out of your workers’ comp, you need to know how workers’ compensation works. Here’s the basic rundown: 

Who needs Workers’ Compensation Insurance? 

In almost every state, once you hire your first employee, you need workers’ comp insurance. While requirements vary from state to state, you review your specific state guidelines or reach out to one of our agents for the exact regulations.

Even in a state that doesn’t require workers’ comp insurance once you hire an employee, it’s wise to consider getting a policy.   

Without it, an employee’s work-related injury or illness could leave you with significant medical and legal expenses. 

Who pays for Workers’ Compensation Insurance? 

While workers' compensation insurance offers valuable support to employees, the financial responsibility doesn't fall on them. Instead, the employer is responsible to cover these insurance charges.

What Injuries are covered? 

Workers' comp insurance typically covers a range of injuries and illnesses that are a result of an employee's official responsibilities. Here's a list of what's generally covered:

Physical Injuries: From minor mishaps like cuts and burns to broken bones and worse.

Repetitive Stress Injuries: These are caused by repetitive tasks or postures at work. Common examples include carpal tunnel syndrome from consistent typing or back issues from continuous hunched seating.

Respiratory Illnesses: For those in industries like chemical processing or construction, harmful lung exposures can lead to severe respiratory issues. If the right protective measures weren't in place or failed, resulting illnesses might be covered.

Hearing or Vision Loss: Persistent exposure to high decibel sounds, especially without protective gear, can lead to hearing impairment. Similarly, the absence of protective eyewear can lead to vision issues.

While this provides a general overview, it's important to note that coverage specifics can vary depending on the insurance provider and state laws. 

As a broad guideline, any injury or illness stemming from an employee's professional duties may be covered by workers' compensation insurance.

What Injuries are not covered?  

Even though workers’ compensation insurance is comprehensive, there are certain injuries that it won’t cover. Here are a few examples: 

• Injuries sustained while commuting to work when not officially on duty.
• Situations where the injured worker was under the influence of drugs or alcohol.
• Instances of self-inflicted injuries.
• Pre-existing conditions that weren't directly caused by job-related activities.

How does a Workers’ Comp Claim work?

Workers’ comp claims allow employees to get coverage and benefits from their employer’s insurance. While the process of a workers’ comp claim can vary from state to state, there are some common steps taken regardless of location. 

First, if an employee is injured while at work, they need to alert the company immediately. Typically, the incident report is filed through HR and will be a detailed form where the employee will provide as much information as they can about the incident. 

The injured or ill employee will then need to seek medical care. Employees are responsible for obtaining documents from their doctor or hospital visits so they can give them to their employer. 

Once the medical visits have happened, the employer will file a claim with their workers’ comp insurance company. Claims must be made within a certain amount of time, depending on the state and the insurance company’s guidelines. 

When the claim is filed, the insurance company will then investigate the claim. There are often steps like interviews and on-site investigations to determine if the claim is legitimate. Claims will either be approved or denied. Employees can file an appeal if the claim is denied. 

If it’s approved, the insurance will help cover the medical costs of the injured employee. Workers’ comp payments may also include lost wages payment while the employee is out of work, death benefits if an employee is killed on the job, and rehabilitation benefits to help the employee recover. What is covered is determined by the workers’ comp insurance the employer has in place. 

How much does a Workers’ Comp Claim cost a company?

The cost of a workers’ comp claim can vary based on what the injury or illness was, the type of coverage the employer has, and other factors. While your company will be paying a premium to have the insurance, there can be costs that accrue when a claim occurs. 

The most direct cost of a workers’ comp claim is the potential increase in the premium payment. An employer’s insurance premium is calculated by this formula: 

Annual Employee Payroll / $100 x The Rate = Premium

While the first part of the equation is pretty simple to understand, calculating the rate can be more difficult. The biggest factor for the rate is how many claims are filed in your industry, in your state, over time. 

The more claims there are, the higher the rate will be. This is because more claims show a higher risk and a bigger chance of an incident.

Having one workers’ comp claim filed may not cause an increase in premium. However, depending on the severity of the claim, the costs included in the treatment, and other factors, it could. 

The more workers’ comp claims that are filed against an employer, the higher the insurance premium will rise. 

If the risk seems higher in the employer’s field or their business, that will cause rates to go up, which will cost the employer more money. 

However, there are other indirect costs that employers may experience when a workers’ comp claim is filed. These indirect costs are ones that workers’ comp insurance won’t cover, leaving the employer responsible for them. 

Some of these indirect costs may include:

• Overtime needed to make up for lost production time
• Wages to the injured employee if they have absences not covered by the policy
• Expenses for hiring a replacement employee if the injured employee is out for a long time
• Repairs and clean-up required after the incident
• Administrative time spent by safety teams, supervisors, or HR personnel after the incident
• OSHA fines
• Legal fees if the employee seeks legal action

The cost of these will differ based on your location, the severity of the claim, and other factors. While some of these may be costly, it’s important to have workers’ comp insurance to help lower the total cost of the incident. 

What are common effects Employers experience with a Workers’ Comp Claim?

There’s more to the effects of a workers’ comp claim than the monetary cost. While cost is the most common one people consider, it’s important to look at other impacts as well. 

Depending on the incident, your team may experience a loss of productivity. This can be due to any number of reasons, including the learning curve of new employees, rescheduling work due to the incident, accommodations that must be made, or pure loss of morale in employees. 

If the incident is major enough that it becomes public knowledge, the image of the company can become tarnished. This can cause a loss of current employees and customers. It can also deter people from choosing the company in the future, which could cause a loss of business or employee potential. 

How can employers lower the cost of Workers’ Comp?

While it’s important to offer good workers’ comp coverage for employees, there are ways to do that and still save some money. 

Class Codes

One of the simplest ways to lower costs is to ensure employees are classified accurately. Insurance companies have classification codes that help them know the level of risk they experience at work. 

If you have employees misclassified into a higher risk position, it can cause an unnecessary increase in premium. 

Safety Program

Another crucial way to lower potential costs is by implementing an effective safety program. Not only do you need to create and implement the program, it’s vital to ensure all employees are thoroughly trained in all the program entails. 

Proper safety training keeps incidents from happening in the first place, which will keep premiums low. 

Return-to-Work Program

Creating a return-to-work program can also help lower costs when an incident does occur. Return-to-work programs allow injured employees to come back to work sooner by providing them with lighter duties than their typical positions. 

These programs allow employers to spend less on disability coverage for employees and prevent the cost of hiring, onboarding, and training a replacement employee. 

Ex-Mod

Implementing safety and return-to-work programs can help lower a company’s Ex-Mod (experience modification rate). The Ex-Mod is what compares your company’s claim and loss history to other businesses in your area and field. 

If your company is experiencing a high number of incidents and claims, your Ex-Mod will go up. Higher Ex-Mods mean higher insurance premiums. 

To keep your Ex-Mod low, you need to keep your incident losses low. Safety protocols and return-to-work programs are two proven ways to lower your Ex-Mod. 

However, don’t expect a low Ex-Mod to lower your rate overnight. Insurance companies are looking for a track record of safety and low losses. Once your company has years with little to no incidents, you may begin seeing lower premiums. 

Find Workers’ Comp Insurance with Kickstand

You want the best workers’ comp insurance available. At Kickstand Insurance, we have experience working with companies of all sizes and in all industries. We’ll work with you to get the right coverage, understand the claims process, and get your premium where you need it.

Once you fill out your request for an instant quote, one of our team members will reach out to walk you through the next steps of implementing workers’ comp insurance. Of course, you can contact us if you have questions about how Kickstand can help cover your business in the event of a workplace injury.