What Is Workers’ Compensation Insurance?
Workers’ compensation insurance offers companies coverage in the event that an employee experiences a job-related illness or injury. State law determines the specific benefits that must be provided by the policy. Typically, workers’ compensation policies are obtained from private insurance carriers, self-insurance, self-insured groups, or state insurance funds.
Though the specific benefits provided vary depending on your state, a workers’ comp policy may include compensation for past and future economic loss, payment of or reimbursement for medical expenses, weekly payments in lieu of wages, and benefits payable to the dependents of workers who were killed on the job or during employment. Damages for employer negligence and pain and suffering are not generally included in workers’ compensation.
In most cases, injured employees can collect compensation benefits even if they caused their injury, as workers’ compensation laws usually provide employees with no-fault benefits.
Do I Need to Provide Workers’ Compensation Insurance?
With the exception of Oklahoma and Texas, every state in the U.S requires businesses to have workers’ compensation insurance. But even if you live in a state where you can opt out, it is still in your best interest to have it. Just because you don’t have workers’ compensation insurance does not mean you won’t be considered responsible for an injury. Without insurance, lost wages and medical costs come out of your pocket, directly impacting your bottom line.
In addition to state requirements, many organizations require subcontractors and partners to carry a workers’ comp policy.
It is important that you check the requirements of your state to ensure that you follow all requirements and procedures. Some areas have different rules for what constitutes an employee or what type of employees constitute the need for a policy. You can see what requirements your state has here.
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What Is the Cost of Workers’ Compensation Insurance?
It is difficult to offer an exact cost for workers’ compensation insurance, as rates are dictated by your annual payroll, claims history, industry you work in, and the state you are located in. The higher the risk of a claim in your industry, the higher your rate will be. What follows is a general pricing guide based on national averages to give you an idea of what you can expect to pay for workers’ compensation insurance.
- For a tax preparation service with an annual payroll of $140,000 and three employees, workers’ compensation insurance has an average cost of $150 to $200 per year, plus an admin fee of $250, for a total employer cost between $400 and $450.
- For a painting contractor with an annual payroll of $140,000 and three employees, workers’ compensation insurance has an average cost between $12,000 and $13,000 per year, plus an admin fee of $250, for a total employer cost between $12,250 and $13,250.
The pricing listed in both examples assumes that neither business has had a workers’ compensation claim in the past.
How Your Premium Is Determined
Your workers’ compensation premium is determined primarily by your:
- Accident history: Your premium is based partly on the number of accidents that have happened in your workplace compared to the average number of accidents for all businesses of the same classification and size. Generally speaking, if your workplace has fewer accidents than the average business in your industry, you can expect to pay a lower premium than a business with more accidents.
- Payroll: Higher payroll means a higher workers’ compensation premium. The more workers you employ, the higher the chance is of someone having a workplace accident or injury. After accident history has been assessed and your business has been correctly classified, it is assigned an experience modification rate, which is multiplied by your payroll to calculate your premium.
- Type of business: Your premium is also based on the industry your business is in, with low-risk industries having lower premiums. For example, an accounting or law firm has a lower risk of workplace injuries than a construction company, and therefore pays a lower premium.