Workers’ Compensation – Frequently Asked Questions

What is workers’ compensation?

Workers’ compensation (workmans’ comp) provides benefits to employees who are injured at work. An employee may be entitled to receive wages for lost time and medical care as well as a death benefit.

Is workers’ compensation required?

Business owners in all states (except Texas) are required to carry workers’ compensation based on the number of employees.

How much does it cost?

Workers’ compensation rates range by job or industry classifications and state filings.  The rates are filed in each state and may vary by insurance company.  In a few states like Florida and New Jersey the rates are published by the state, which means insurance companies are mandated to charge the filed rates.  In most states the rates vary and the insurance companies compete to win business.

What is a job classification or class code?

Each industry or business has been assigned a classification code for purposes of workers’ compensation. There are approximately 700 class codes throughout the country and the description may vary slightly by state.  Typically they are 4 digits except Pennsylvania which are 3 digits.

Example: ABC Plumbing Co. has 2 classifications for their employees, plumbers and office staff.  To determine an estimated premium, first, divide the base rate(s) by 100 and then multiply by the estimated payroll.

ABS-Plumbing-SampleThe above example is based on the estimated payroll figures provided by the business owner which means, the premium is also estimated. The actual premium will be determined after the insurance company finalizes a premium audit.

This also demonstrates one of the benefits of choosing Pay As You Go. By paying your premiums based on the actual payroll, you are actually auditing the policy each time you process payroll.

How is the premium paid?

Depending on the insurance company or agent, the most common payment method is referred to as direct bill. This requires a deposit or down payment and monthly installments.

The other option is referred to as Pay As You Go, which reduces or eliminates the typical down payment and allows business owners to pay their premiums based on their actual payroll each cycle.

What is a premium audit?

Your insurance company is required by state law to perform a reconciliation of your payroll and related factors to determine your actual premium

Does Pay As You Go eliminate the need for an audit?

No. Pay As You Go reduces the potential impact of fluctuating payrolls.  If you business is growing, your payroll will increase and pay as you go will adjust each time you process payroll.

Why has my insurance provider not offered Pay As You Go?

Many insurance professionals do not understand the benefits and many others do not have the technology to calculate, track and manage fluctuating payments.

How do I get a workers’ compensation quote?

Complete a short questionnaire online or fact finder to provide the necessary information.  If you have a policy in force, provide us a copy of the client’s current policy. Additional information may be required based on your industry type and years in business.

What additional information may be required?

If the business has workers’ compensation in place, we may need a supplemental application specific to the industry, loss history reports and other related documentation may be requested.  If the applicant is a new business, we may need a No Loss Letter.

What is a loss history report?

Workers’ compensation is one of the few insurance coverages that provides detailed descriptions of injuries to employees.  The insurance provider will only send the report per request and sometimes takes a few days to obtain.  The report can also be referred to as Loss Run Report or Current Injury Report.

What if the business in new or has not had prior workers’ compensation?

In most cases, a simple letter on company letterhead which states that there are NO KNOWN INJURIES or ACCIDENTS.

Why is loss history report important?

The report indicates both the number of claims and the amounts paid for medical, wage or other expenses.  If a client has a significant number of claims or large payouts, it may be more difficult to offer a new quote.  In order to get the most competitive rates it is imperative to manage your losses.

Is every client eligible for workers’ compensation?

It is dependent on the industry and prior loss history.  If a client removes asbestos, handles explosives or is a restaurant will unusually high losses, they may have no choice except an Assigned Risk or State Fund which is required to offer or provide coverage by state mandate.

How does a client obtain workers compensation in a State Fund?

Each state has different rules regarding the application process.  The requirements include applying directly with the state or using a local insurance professional domiciled in the state.

Are the owners or officers included on the policy?

It is optional and the rules vary by state.  If the officers elect to be included the insurance company has a minimum and a maximum payroll exposure.  Officers may exclude themselves by completing a form or online application and pay an annual fee.