What is Workers’ Compensation insurance?
Workers compensation exists to provide protection for injury or illness that someone gets through the course of their employment. The injury must be work related, for example a broken arm because a box fell on a worker. Two notable times workers compensation will not pay for injury is during an employee’s commute to or from work or if there was intentional or willful misconduct involved.
What does Workers’ Compensation cover?
Workers’ compensation will cover medical bills & wage loss. Wage benefits are paid at 80% of the average weekly after-tax wages that the employees were making. All states have a set fee schedule for how much medical providers can charge for visits and treatments that have to do with a work injury. There are also specific scheduled amounts paid out for loss of limb, body parts, mobility, or ability.
Who needs Workers’ Compensation insurance?
It is required by law in the state of Michigan that employers have a workers compensation policy in the following instances:
- Employers with one or more people employed for 35 hours or more per week for 13 weeks or longer during the preceding 52 weeks (or one year).
- Private employers that regularly employ three or more people at a time.
- Agricultural employers that employ three or more employees for 35 hours or more per week for 13 or more consecutive weeks.
- Households that employed domestic servants for 35 hours or more per week for 13 weeks or longer during the preceding 52 weeks.
- Public employers.
Insurance companies are required to report directly to the state, on the employer’s behalf, to provide evidence the employer has complied with the law. The state can and will levy daily fines to companies who do not carry workers compensation when they should have.
To learn even more about workers’ compensation rules in Michigan, you can visit the Workers’ Disability Compensation Agency by clicking here.
Who is covered under my workers’ compensation insurance?
All workers who are employed at the time of the injury are covered under a workers compensation policy. If it is their first day or 10th year on the job everyone is protected. There are special provisions for owners and they have the ability to choose if they would like to be covered under the workers’ compensation policy as long as they own at least 10% of the company. If owners are excluded, it means their salary is not included in the total payroll used to calculate premium. It also means if the owner is injured in the course of their employment, there will not be coverage for their injuries through the policy. If included, it means owners are included for coverage and being charged a premium based on their salary.
Owners need to make a decision if they would like to be included or excluded. If they have a strong disability policy that can help provide wage protection in the event of a serious injury and health insurance to handle medical bills, it may be most cost effective to choose to be excluded on the workers compensation policy.
If I am the sole proprietor do I need workers compensation?
The short answer is no, as a sole proprietor you are not required to carry workers’ compensation insurance. However, there may be times where you will need to provide proof of a workers compensation policy regardless. For many sub-contractors a workers’ compensation policy is a requirement to work at a particular job. In that case, there are two paths you can take.
You can set up a “dummy policy” through the state which will exclude you as an owner and therefore will cost you very little money but will allow you to have a certificate of insurance showing workers’ compensation.
Or, if permitted on your job site, the state of Michigan will allow sole proprietors to apply for a WC-337 Notice of Exclusion that is good for as long as you don’t have employee’s. To find out whether you qualify for this exclusion and obtain a copy of the form, contact the Compliance & Employer Records Division at 517-284-8922.
Are contractors or temp workers covered under my workers compensation?
It depends on how they are hired or contracted. A temp service or placement agency covers workers comp for workers that are employed through them. If you hire a temp worker or a seasonal worker on your own, they are covered under your company’s workers’ compensation policy.
Do all states require Workers’ Compensation insurance?
Certain states are monopolistic states, meaning you must get workers comp through the state. Ohio, Wyoming, Washington and North Dakota are all monopolistic workers’ compensation states. This means the only way to purchase insurance is directly through the state. If an employer has operations in multiple states, including one of the monopolistic ones, they will need to have an insurance policy through the standard market and a separate policy with the state. In Michigan, you can get it through the state or through a private agency.
How do I purchase Workers’ Compensation insurance?
The best way to buy workers’s compensation insurance is to work with an independent insurance agent. They will be able to help answer any questions you may have, provide different options and review pricing with multiple different insurance companies to be sure you aren’t paying more than you need.
To get started with a free, no obligation quote, click here to enter your information and see a preliminary rate for your business.
Your agent will also help you understand how workers’ compensation insurance fits with your overall insurance needs and how additional protection can be provided through things like a commercial umbrella policy.
How much does workers’ compensation insurance cost?
This depends on a variety of factors. Workers’ compensation policies are rated based on payroll. The payroll is broken down by the type of worker employees do, and is assigned a particular class code. Each insurance company sets their own rates for individual class codes, so not every company charges the same price for the same type of work. There are cases where an employees payroll can be split between two different class codes if they have different responsibilities. However, very good documentation is required to make this happen. Consult with an agent as this is not available for every classification.
Once payroll is sorted, insurance companies will apply different credits and debits to a policy based on a variety of factors. One of the most important pricing factors is an Experience Modification factor, or E-Mod. A company’s E-Mod is based on their personal claim history and then the state compares the individual company to others in their industry. If your company has a better than average experience as compared to others, then the E-Mod will be a credit.
Conversely, if a company’s claim history is worse than the industry average the price will go up. This E-Mod is recalculated each year based on three years of claim history excluding the most recent previous year. This means if you have one bad claim causing your price to be higher, it will eventually no longer be counted and your premium can go down in the future.
Additional factors that affect cost:
- Classification & number of workers
- Safety procedures such as
- Written safety manual
- Safety committee
- Regular safety meetings
- Training videos
- Safety director
- Return to work program
- The E-MOD factor
- Previous claims & losses
- Rates for the insurance company you work with
- Non-compliance fees
- Including or excluding owners/officers
Many insurance agents are able to see rates from every insurance company in your area, which helps them set you up with the best policy for you. An agent will also be able to make sure your business and workers are all insured under the correct class code, protecting you from costly audits in the future. These are just some of many benefits of working with an independent insurance agency.