Workers Compensation Insurance: The Basics - Are You Paying Too Much? WHAT IS WORKERS' COMPENSATION INSURANCE?

Workers Compensation Insurance

 Workers Compensation Insurance: The Basics - Are You Paying Too Much?. WHAT IS WORKERS' COMPENSATION INSURANCE?. It is a policy issued to a business owner which provides them with insurance coverage for the costs of work related injuries to their employees. This type of insurance pays for all costs associated with a workers' injuries such as, medical bills, lost wages, rehabilitation, and permanent disability or death. The benefits under a workers' compensation policy are set by the state's workers' compensation regulatory commission.

HOW IS WORKERS' COMPENSATION PREMIUM DETERMINED?

This is rather simple. The premium is a percentage of your estimated pay roll for the policy term. Since the risk of injuries to workers varies by the type of work they perform, each business is assigned a specific classification which represents the degree of hazard in their industry. For example, if you own a convenience store which stays open later than 11:00 pm, your workers' compensation classification code would be 8061 - Store- Convenience -retail. Note both the classification number and the description are set by the state under section 11658 of the California Insurance Code. There are approximately 500 classifications which are published by the state to cover every industry, and business in California. The premium rate for each classification is determined by the degree of hazard of injuries in the industry it represents. i.e. A convenience store's premium rate is lower than a construction contractor's, and higher than a telemarketing firm's.

DO I HAVE TO HAVE WORKERS' COMPENSATION INSURANCE?

If you are operating a business in the state of California, and employ any workers, you are required by the state labor commission to have workers' compensation insurance. The only businesses which are exempt from this rule are the ones operated solely by the owners with no employees. In other words, if you have any employees including occasional or seasonal part time help you must obtain workers' compensation coverage. If you operate without it you run the risk of heavy fines, and possible shut down of your business. An employee is considered to be anyone who works for the business, and is not a legal owner. The relatives including the children of the owner, who do any work for the business are also considered to be employees, even if such relative or children are donating time without pay.

There is another reason for you to have workers' compensation insurance, and that is to protect yourself from financial disaster. The medical costs of treating an injured worker, the lost wages, and other costs associated with it could be extremely burdensome for any small or large business, and could put their assets in jeopardy.

ARE OWNERS COVERED UNDER A WORKERS' COMPENSATION POLICY?

They are covered only if they want to be. In other words, the owners have the option to include or exclude themselves from coverage. This would mean if they are included in the coverage, then they are also entitled to the benefits in case they are injured. If you choose to be included, then your pay roll would also be included in the calculation of your workers' compensation premium. You can also elect to be excluded from coverage; in this case you would not be charged the premium for your pay roll.

WHO IS CONSIDERED TO BE AN OWNER?

Who can be excluded is determined based on the legal form of ownership of your business. The three most common legal ownership entities used by businesses are as follows:

1. Sole proprietorship or individual ownership - in this case, the individual, their spouse and their resident relatives can be excluded from coverage.

2. Partnership - All partners can be excluded, spouses and relatives can not be excluded

3. Corporation - All share holders who are also officers can be excluded only if the officers own 100% of the stock of a corporation. Officers who do not have shares or share holders who are not officers can not be excluded. Spouses and relatives can not be excluded...

I hope this has been helpful in shedding some light on workers' compensation workers' compensation coverage for your business. Please feel free to call us for any question you may have. We would also like you to know that we offer some of the lowest cost workers' compensation policies for your type of business. We can provide you with a quote very quickly at no cost or obligation to you.

Workers compensation costs are rising. According to a recent report by the Workers Compensation Research Institute (WCRI), indemnity costs per claim (the loss of earning capacity, payments for lost wages, or permanent impairment or liability) increased faster from 2007 to 2009 than in prior years. The recession has had a significant impact on indemnity costs, and the study showed rapid growth in medical-related costs per claim due to many factors such as increases in doctor's office visits.

The gist of this report is that the cost of your workers comp insurance is almost certainly going to grow according to the type and amount of claims you file due to workplace injuries. Although it appears costs are rising, you can actually reduce expenses for workers compensation coverage by establishing and enforcing a culture of safety. Taking a proactive approach to safety won't only decrease workplace injuries which results in lower insurance premiums; having healthy employees means higher productivity and performance so you can watch profits increase rather than insurance costs for workers compensation.

A consistent workplace safety record shows insurance companies that your business is a good risk. And although determining coverage can be a complex task--best left to a trusted workers compensation insurance specialist--as a business owner it's really a simple equation: fewer claims result in lower premiums.

Let's take a closer look at some of the steps you can take to create a culture of safety that will ultimately reduce workplace injuries and, in so doing, significantly decrease the high costs associated with claims for workers comp insurance:

--If you haven't done so already, sit down with your management team and develop a safety policy and safety manual. Revisit and update your policies regularly and frequently communicate these policies to your employees.

--Review your past and current claims history to recognize trends, potential hazards, and high-risk areas of your business that may result in workers compensation insurance claims.

--Appoint a dependable employee as your company's safety supervisor whose job duties involve monitoring these hazards and risks, including walking areas that may be prone to slips and trips, and places where heavy items may fall or cause injury if moved or lifted.

--Post signs in break rooms and other high visibility areas that highlight hazards, advise ways to avoid them, and instruct what to do in case of injury.

--Emphasize employee awareness of the importance of workplace safety by holding regular meetings, and consider implementing an incentive program that rewards employees for maintaining a spotless safety record.

Review your workers comp insurance program at least annually at the same time you update your safety policies and procedures. Meet with your insurance company to discuss how changes in your workplace may impact your workers compensation insurance coverage. If you make safety job number one you may be surprised by how much a reduction in claims has on insurance expenses.

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