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What is workers' compensation?
Who needs it?
What is the foundation of workers' compensation insurance?
What determines the cost of workers' compensation insurance?
What do employers need to know about experience mod factors?
Why is a return-to-work program important?
Should I put an injured employee on light-duty assignments?
What are the red flags for detecting workers' compensation fraud?
Who makes sure that employers pay the correct amount of premium?
What is the first step for an employer who has a claim?
How do employers reduce the number of claims in their companies?
Workers' compensation is insurance designed to protect both employees and employers in the event of work-related accidents or illnesses. It provides the injured employee with medical coverage and the employer with protection from liability (except in cases of extreme negligence).
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Legally, some employers may not be required to have workers' compensation insurance. The laws differ from state to state. (Please refer to the laws in your state.) However, having coverage can help protect a company from expensive medical bills and lawsuits. Workers' comp insurance carriers may also provide safety and OSHA compliance services that may help prevent workplace accidents or illnesses. The information provided on this site should not be interpreted as legal or financial advice or as a recommendation to buy or forego any workers' compensation insurance product.
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All 50 states have workers' compensation statutes. These laws protect workers and their dependents if injury, disease or death occurs while a person is on the job.
Workers' compensation insurance is considered the exclusive remedy for workplace injuries. In most cases, lawsuits by employees are barred by statute. Only in rare circumstances have negligence lawsuits been allowed.
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Three ingredients are needed to establish what rate of workers' compensation insurance an employer should pay.
- Payroll. The basis for a workers' compensation insurance premium is the employer's "payroll" or "remuneration." Specific rules must be followed regarding the forms of remuneration that are to be included in determining the total payroll. For each $100 in total payroll, there is a specific rate, which is determined by industry classification.
- Employer classification. Employers are separated into groups according to the type of work they do. The "classification system" designates which types of work pose more risk to the employees performing the tasks. For example, a roofer is at more risk for injury than a receptionist in an office. Each classification of employer must pay a designated amount for workers' compensation insurance based on every $100 in payroll. The classification code numbers are assigned by the state.
- Experience mod factor. The "experience modification" is a calculation that applies to policies with more than a pre-determined level of premiums. It identifies employers who cause or have the potential to cause excessive workers' comp payments within a classification of employment. It also identifies those employers with the fewest injuries. Mods are based on comparisons with other employers in the same classification. Employers with low mods pay lower premiums than those with high mods. Employers who are average in frequency and severity of accidents carry a mod of 1.00. Those with fewer and less severe accidents have a mod of less than 1.00. Those with frequent and more severe accidents than average get a higher mod.
After these three ingredients are in place, an employer's workers' compensation premium is calculated by this formula: payroll (per $100) x classification rate x experience mod.
In some states, the National Council on Compensation Insurance determines the figures.
This calculation does not take into account deviations, dividends, expense constant, payment plans, discounts and other programs that may be available.
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An experience modification factor is a calculation that applies to workers' compensation insurance policies with more than $5,000 in premium. It identifies employers who cause, or have the potential to cause, excess workers' comp charges within their classification. It also identifies those employers with the fewest on-the-job injuries. These identifications are made by comparisons with other employers in the same classification. Employers with lower than average mods pay lower premiums than those with higher than average mods. Employers who are average in frequency and severity of accidents carry a mod of 1.00. Those with fewer and less severe accidents have a mod of less than 1.00—for example, 0.70. Those with frequent and more severe accidents than average get a higher mod—for example, 1.80. New businesses get a mod of 1.00 until enough data is gathered to calculate an actual mod.
An important fact to remember is that frequency of accidents is given more weight in determining workers' compensation insurance mods and premiums than severity of accidents. Frequency indicates a trend or a pattern of laxity in maintaining a safe workplace. Also, frequency provides more opportunity for severe injuries, while a one-time severe injury accident likely indicates an unfortunate set of circumstances.
Most frequency claims are "medical only," in which no indemnity is paid. Therefore, 70 percent of these claims are removed from the formula that determines a mod, thereby lessening their impact on the mod.
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A return-to-work policy is an essential part of resolving an on-the-job injury. The policy is essential because retaining skilled workers is important. Also, when employers bring employees back to work, they are helping to contain claims and turnover costs.
Every business is unique, so there is no overall road map to follow in developing an effective return-to-work plan. However, the program should be developed so that the first step toward an injured employee coming back to the job begins immediately after medical treatment by a physician. That first step is for the employer to visit the employee as soon as possible to show concern and to reassure him that his job will be waiting as soon as he is able to return.
This return-to-work policy must receive solid commitment from everyone in the company's management team. The program should be implemented consistently. Following every injury accident, the same supervisor or group of supervisors and managers should be in charge of the return-to-work plan. Their responsibility should be to keep communications open between the injured employee and the company.
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Light-duty assignments make injured workers feel useful and needed. Injured employees waiting at home until their injuries are completely healed are more tempted to pursue litigation because they feel shut out. Television commercials promoting legal services for people injured on the job also tempt the injured workers to seek out attorneys.
However, the tasks given to injured workers have to be meaningful. Recent court rulings have stressed that creating a position simply for a light-duty assignment is not acceptable. Light-duty jobs must already be established within the normal functions of the work environment.
Employers should identify jobs that can be handled by recuperating employees to give them a sense of belonging and self-worth. These jobs need to serve as stepping stones back to regular employment.
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There may be times that an employer suspects an employee is faking a workplace injury. In that situation, he may want to use the following clues to determine if his suspicions warrant further investigation:
* Injury was not reported promptly to supervisor.
* No one witnessed the accident.
* Task that caused an injury is not consistent with job duties.
* Injury occurred late on Friday or early on Monday.
* Employee had been recently reprimanded, put on probation, or laid off and called back.
* Alleged injury coincides with personal problems.
* Employee immediately hires an attorney.
* Injured worker is familiar with claims procedure and workers' compensation law.
* Employee changes physicians when a release for work has been issued.
* Letter from injured worker's attorney is dated the day of the reported accident.
* Attorney threatens legal action unless quick settlement is reached.
* Inappropriate and expensive treatment is prescribed for minor injury.
* Documentation doesn't support services listed on medical bills.
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Premium auditing is an essential ingredient in the workers' compensation insurance formula. Premium auditors ensure that each employer is paying the correct premium.
While there are no shortcuts to less expensive workers' compensation insurance premiums, the auditors can keep employers from paying too much.
Some industries pose more potential for injury than others. For example, mechanics or warehouse workers stand a better chance of being hurt on the job than office clerks. Therefore, the premiums are higher for those companies with workers at greater risk of being injured. Employers in industries posing lower risk would want to be sure they are paying lower premiums if their classifications qualify them to do so.
Businesses are classified according to the operations that they perform. The main classification, called the governing code, is assigned to the business as a whole. Under the classification system, each company fits into a specific category, such as furniture store, auto repair service, restaurant or convenience store, to name a few. Businesses in each classification pay for insurance at a rate roughly equal to the amount needed to pay for the average expected losses for that type of business.
The classification groups are large enough to provide an accurate statistical base to ensure that rates are adequate to pay for expected losses and expenses, that rates are "reasonable" or low enough to prevent excessive insurer profits and that they are not inequitable or "unfairly discriminatory."
Employers should remember that it is the company's line of business that determines the workers' compensation classification and not the various jobs within that company.
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When an employee is hurt on the job, an employer's first response should be to seek appropriate medical care for the injured person.
After the incident, the employer needs to contact his workers' compensation insurance carrier. Many states require that a report of injury be filed within a certain timeframe. It is the employer's responsibility to make certain this is done.
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Safe workplaces have fewer injuries. Employers who teach and preach workplace safety to their employees find that their operations run much more smoothly. The following tips can help companies work safely:
- Employers should develop and implement a formal, company-specific safety policy and procedure.
- Employers should insist that the company's rules mandating safety be followed.
- A safety committee consisting of supervisors and employees should meet regularly and inspect the total operation of a company to detect any new hazards that have arisen.
- Employers need to make certain that machinery is kept in top working order and that guards or other protective devices around moving parts are not removed.
- Fix what needs fixing—broken tools, ripped carpet or damaged floors that can cause someone to trip and fall, malfunctioning machines, poorly lit areas, etc.— before someone is hurt.
- Some states have laws concerning illegal drugs in the workplace and encourage employers to establish drug-free workplaces. Workers who use illegal drugs are a safety hazard to themselves, their co-workers and a company in general. Employers should learn all that they can about keeping drugs out of their companies.
- Wise employers follow the advice of a loss control consultant, whose services may be available through their workers' compensation insurance carrier. Injuries are costly in many ways, including overtime to compensate for short staffing, delayed production and training demands to name a few. It pays to work safely.
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