What is Workers’ Compensation Insurance?

Workers’ comp insurance is insurance that companies buy on an annual basis to provide for their employees in case they get injured or become ill on the job. 

It will help cover medical expenses and pay the employee a percentage of their usual income until they are well enough to return to work. 

This saves the employer from having to pay the potentially astronomical hospital bills and makes sure that the injured worker gets the care he needs so he can get better without worrying how to pay for all his bills.

Here’s a quick example of the purpose of workers’ compensation insurance.

Sally owns a small corner grocery called Sally’s Corner Pantry. It’s amazing how much inventory she can fit in her little store. The people in her neighborhood like to pop in on their way home from work and pick up what they need to make dinner.

Workers comp explanation

One morning, while stocking the shelves, Jim bent down to pick up the next case of tomato cans. As he stood up, he felt a stinging pain in his back and he fell against the shelves - just a bit too forcefully. The rack of cans, which wasn’t too steady, wobbled and toppled on his head. OUCH! 

Jim is now injured on the job and should be seen by a medical professional. He probably pulled something in his back and will need to rest for a few days. He may also have a bad concussion from all those cans and need more serious intervention. 

Sally calls 911. The medics strap Jim onto a backboard and take him in an ambulance to the hospital.

Sally calls her insurance agent for help filling the claim. She’s worried about Jim but thankful that she has a workers’ compensation insurance policy that will take care of all the expenses related to the injury and will pay for Jim to be treated properly.

Who is covered by Workers’ Compensation Insurance?

First, let’s look at the workplace injuries that would be covered.

Workers' compensation insurance typically covers a range of job-related injuries and illnesses that occur as a result of an employee's job duties. Workers’ comp insurance will cover the following types of accidents.

  1. Physical injuries
    This can be as small as a cut, burn, or sprain to broken bones and worse.
  2. Repetitive stress injuries
    These are injuries that are caused by repetitive movement while working on the job.This would include carpal tunnel syndrome for people who work on a computer or a ‘bad’ back for someone who sits hunched over a sewing machine all day.
  3. Respiratory illnesses
    Many employees in the chemical and construction space can be exposed to things that are very bad for their lungs. All workers in such jobs should use the proper protection but if they didn’t or it wasn’t enough and they have lung issues, they may be covered under the workers’ comp insurance policy.
  4. Hearing loss or vision loss
    Workers who use very loud machinery must wear proper hearing protection! Exposure to loud sounds for prolonged periods of time may affect their hearing and be a cause for a claim. The same applies to using protective glasses or goggles to protect their eyes from injury.  

This is a general range of what is typically covered by a workers’ compensation policy. Remember that each insurance company and each state’s law may have different definitions and requirements for what is considered a covered injury or illness. 

Generally, any injury or illness caused by an employee's job duties may be covered by workers' compensation insurance.

What is covered by Workers’ Compensation Insurance?

workers comp covers medical bills

Medical expenses

This would include the cost of medical treatment for the injury or illness, including hospital stays, surgery, doctor's visits, prescription drugs, and rehabilitation. It can even cover the cost of transportation to and from doctor’s appointments.

workers comp covers lost wages

Lost wages

If an employee has to recover and is unable to work due, workers' compensation insurance may provide a portion of the employee's lost wages, usually about two-thirds of the employee's average weekly wage.

Permanent disability benefits

Permanent disability benefits

If an employee is permanently from a job-related injury or illness, workers' compensation insurance may provide a lump sum payment or ongoing benefits to compensate for the employee's lost earning capacity.

workers comp pays death benefits

Death benefits

If the worst happens and an employee dies on the job or from injuries sustained while on a job, the insurance policy may provide death benefits to the employee's surviving family members, including a lump sum payment and ongoing benefits.

As you can see, having a good workers’ compensation policy in place is really important to pay for all those expenses. If the worker wasn’t covered by the policy, he can sue the company he was working for! 

A bad injury can be devastating to a small business. Injuries do happen and it’s best to protect your business with a policy.

What is not covered by workers’ compensation insurance?

There are a few types of injuries that would not be covered by a workers’ compensation policy. They would include injuries that happen when 

How much does workers’ comp insurance cost?

Workers comp payment options

A workers’ comp policy is based on 5 things:

  1. What state the business is in
  2. What your business does 
  3. What your employees do
  4. How much you pay your employees
  5. What your claim history looks like

A Workers’ comp insurance policy will vary greatly depending on what type of business you have, how many many employees you have and what they do. The more riskier the job role is, the more expensive it will be to insure those people.

In a typical business, there will be employees who perform many different roles. Let’s take a company that installs flooring for an example.

There will be a secretary and bookkeeper. They usually are classified as 8810 clerical. Since they are not performing a risky job, the insurance for these types of employees is really cheap. 

The rate for the installers would be different depending on what type of flooring they install. If they specialize in a specific flooring type, then they would use the classification and rate would match. Here are some examples of the categories flooring is divided by 5437 Wood flooring, 5438 Flooring tile and 5478 Carpet/Laminate.

Can you guess which one is the most expensive? It’s actually 5437 Wood flooring.

How are premiums calculated?

Premiums are calculated using this equation:

Projected premium / 100 x the rate = your premium 

For a longer explanation and step by step example, check out this guide.

Who pays for workers’ comp insurance?

As nice as it would be to split the cost of workers’ comp insurance with the employees it’s meant to help, workers’ comp is paid for by the business. It’s essentially protecting the business from being sued by the injured workers so they have to cover all the cost.

What is my classification code for workers’ compensation insurance?

Calculating workers' comp policy cost

Every type of role your employees perform would usually have its own code. Class codes are grouped by type of risk so very similar risks such as the secretary and the billing team, would be grouped together as a clerical class 8810. 

If you want to find out the correct class codes for your employee roles, you can either try to ask google (yes, google knows everything!) or start an online quote and the software will guide you through the process and assign the correct code for you. 

Having the correct codes for your employees is very important. You don’t want to be paying a higher rate than you need to. That would make your policy more expensive than it has to be.

It can be tricky to break apart your job roles and we’ve seen that 2 out of every 3 online quotes are filled out incorrectly. Yowzers! 

Therefore we recommend using the instant quote feature as a guide but make sure an experienced agent reviews your quote before you buy the policy! 

It can save you money, aggravation and prevent a surprise bill at audit.

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When is workers’ comp insurance required?

This depends on the laws in your state. Since workers’ comp laws are not controlled by the federal government, but the state governments, it’s hard to make a blanket rule.

The laws about when you are required to have workers’ comp vary by state and industry. If you aren’t sure if you need a workers’ comp policy, fill out this quick form and we’ll let you know the laws in your state.

Do sole-proprietors, subcontractors and independent contractors need to have a workers’ comp policy?

If your small business is hiring ​​subcontractors and independent contractors, you should ask them to show that they have an active policy by giving you a copy of their certificates of insurance. If you do not have a copy on file, at the end of the policy, the auditor may include them in your policy which would give you a hefty bill that could have been avoided.

What happens if I am required to have a policy and I don’t have one?

If you are required to have a workers’ comp coverage and you do not have a policy, you can be fined by your state government and even face jail time. 

The only exceptions to this rule are businesses in Texas and South Dakota - but you can still be sued by an injured employee in court if you don’t carry workers’ comp coverage.

What information is needed for a workers’ comp insurance quote?

In order to get an accurate workers’ comp insurance quote, you will need to provide a detailed description on the types of work your employees do and how much you think you will pay them in the next 12 months. 

You can also choose to include or exclude the owners of the business. Some states will have laws regarding when you can include or exclude an owner from the policy. Ask your insurance agent for specific details regarding your business structure and state.

How to get workers’ comp insurance?

Traditionally, you would reach out to an insurance agent who would take all your information and reach out to insurance companies on your behalf to get a quote. This process is cumbersome and can take up to a week before you get an idea of what a policy would cost. 

Then new innovative technology came out that allowed tech savvy agents to run complex algorithms that would calculate the price of a policy instantly and even sometimes even let you purchase it on the spot.

Workers comp instant quotes

The issue with that is that more than half of the policies are inaccurate and are either too expensive because payroll or classifications were incorrect, or they are not structured properly so they don’t provide proper coverage. 

Here at Kickstand, we use similar technology that can give you an instant quote on the spot but we have expert insurance agents review your policy for inaccuracies and ways to save you money before you can purchase the policy. 

This ensures that you are getting a right policy for your business and are covered properly and not wasting money on an inflated policy.

You can start the process to get a workers’ comp policy for your business by filling out our nifty instant quote form. You’ll get an instant quote for your premium and then if you like it, we can proceed to the review stage.

Payment structures

Business owners have a few options to pay for their insurance policies. Typically, policies are either paid all upfront for the year and then they don’t have to worry about forgetting a payment. 

The other common option is to pay it in monthly installments.

A typical workers’ compensation policy is calculated in the beginning of the policy term - and will cover 12 months at a time. Even if your payroll fluctuates over the year, you would still pay the set amount that was agreed upon at the beginning of the policy term.

There is one more option called pay-as-you-go.

What is pay as you go workers’ comp insurance?

It is available to businesses that qualify and can meet certain requirements called ‘pay as you go workers’ compensation insurance policy’. 

Pay-as-you-go means that after the company runs payroll for the month, they would send it to the insurance company. The insurance company will calculate how much they own for the previous month and they will pay on a monthly basis, based on true numbers from the month prior. 

This type of policy is beneficial to companies that are extremely organized and will remember to take care of it every month. If you sometimes forget to pay your bills, this type of payment structure is not a good idea for you.

What if my workers’ comp insurance is canceled?

If you forget to pay one of your workers’ comp bills, whether you are on a traditional payment model or a pay-as-you-go plan, the insurance company will send you a letter warning you that the policy is pending cancellation. 

If you miss it or don’t pay for whatever reason, your workers’ comp policy will cancel. You should avoid this at all costs. 

Unlike that cable company which doesn’t have a problem turning your service on a week later when you pay up your bill, the insurance company will call this time when you aren’t covered a lapse in coverage and they are like a bad mark on your report card. 

Many insurance companies will not insure businesses with a single or multiple lapse of coverage so make sure you pay your bills on time!

If you catch it quickly enough, and pay up what you owe, the insurance company may be willing to reopen your policy. They will make you jump through some hoops and sign a lot of paperwork but then they will issue a reinstatement letter letting you know that your policy is active again.

 What is a workers’ comp insurance audit?

Every workers comp policy has an audit at the end of the policy term, which is typically 12 months. There will also be an audit if the policy is canceled mid-term. The purpose of the audit is to review who was working for your business, what they were doing and how much you have paid your workers. 

The insurance company wants to compare that information to the details you supplied at the beginning of the policy. They will adjust the policy to reflect what truly happened and will either say it matches, you owe them money or they will owe you money. Isn’t it nice when that happens?

Learn more about workers comp audits here and download a free audit prep checklist

What is a certificate of workers’ compensation insurance?

A certificate of workers’ comp insurance is how you can prove that you are covered by an active policy. It’s an official form called an Acord 25 that is filled out by your insurance company and given to you by your insurance agent. It will have important details about your policy and most importantly, it will demonstrate to anyone who needs to know that you have a workers’ comp policy and are protected in case someone gets hurt.

Acord 25

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