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<p>Choosing the right amount of coverage is tricky. You don’t want too little or too much. Here is how to decide what you need.</p>
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<p>As a business owner, one of your responsibilities is to manage the company’s potential risk by using best practices, complying with all applicable laws and regulations, and having the right business insurance. If you have employees, you will need to have workers’ compensation (also called workman’s comp or workers’ comp) insurance as well.&nbsp;</p>
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<p>But how do you know what your coverage should be? Too much coverage will cost the company money unnecessarily, while too little could leave the business open to additional claims and court awards in the event of an incident. Here’s how to choose the right workers’ compensation insurance coverage.&nbsp;</p>
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<h2 class="wp-block-heading">What is workers’ compensation insurance?</h2>
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<p>Workers’ compensation insurance provides benefits and protection for employees who are injured or become ill on the job. The program ensures that employees receive benefits and medical care and, in most cases, protects the employer from legal action in the event of a job-related injury or illness. Workers’ comp is similar to other types of business insurance in that a company pays into a workers’ compensation fund, from which benefits are paid to employees. </p>
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<p>“When employees are injured on the job, workers’ compensation provides financial coverage for their medical bills, lost wages and other expenses,” said Jeff Somers, chief operating officer of HouseCanary. “In addition to protecting employees, workers’ compensation limits employers’ exposure to lawsuits after work-related injuries.”</p>
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<h2 class="wp-block-heading">How to determine how much workers’ compensation insurance you need and the costs</h2>
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<p>How much workers’ compensation you need depends on several factors, including state laws and your industry. Reputable insurance agencies should be able to help you determine how much you need, but you should still do your homework to make sure everything is accounted for.</p>
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<p>To figure out your total workers’ compensation insurance cost, consider the following questions.</p>
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<h3 class="wp-block-heading">What does your state require for workers’ comp insurance?</h3>
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<p>To understand your workers’ compensation requirements, you need to check your state laws. Texas is the only state that doesn’t mandate that companies provide workers’ compensation for their employees. State laws also require regular audits of your workers’ comp policies to ensure you are paying an appropriate amount for the risk exposure your people face on the job.</p>
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<p>“Since workers’ compensation laws are regulated at the state level, business owners should first determine when workers’ compensation insurance is required for their business,” Somers said. “Usually, it’s as soon as they hire an employee.”</p>
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<p>Some states exempt you from getting workers’ comp coverage if you are the sole employee of your business. Somers suggested that, before you use this exemption, you weigh the potential expense of the claim against the cost of insurance.</p>
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<p>“Since most health insurance plans exclude coverage for work-related injuries, sole proprietors may be putting their livelihood on the line if they opt to skip workers’ comp coverage for themselves,” he said.</p>
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<h3 class="wp-block-heading">What is the average age of your workforce?</h3>
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<p>“As employees age, the propensity for injury increases,” said Quinten Lovejoy, founder of The 300 Group. “At the same time, a younger workforce brings about less experience and an increased chance of on-the-job injury.”</p>
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<p>Risk is also increasing for older members of the workforce as more Americans delay retirement. According to the Bureau of Labor Statistics, almost 40 percent of Americans ages 55 to 74 will still be working by 2030. Older workers tend to have a harder time proving that their injuries or illnesses happened on the job, given their higher occurrence of preexisting conditions, so make sure your employees are aware of their rights.</p>
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<h3 class="wp-block-heading">What risks do your workers face?</h3>
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<p>Many factors affect how much workers’ compensation coverage a business owner needs and how much it costs. These factors include the risks workers face.</p>
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<p>“With higher levels of risk comes the need for high levels of coverage,” Lovejoy said. “A roofing contractor obviously has a higher risk than someone working in a jewelry store.”</p>
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<p>Risk factors will determine the cost of your workers’ comp insurance. For example, in New York state, workers’ comp for roofers ranges from about $19.56 to $38.14 per $100 of payroll, while it’s typically $3 to $3.50 per $100 for retail employees.</p>
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<p>While strong safety standards and procedures can offset the danger, the more hazards your employees face, the more coverage you should consider. Common risks associated with construction include falls, trench or scaffold collapse, electric shock and repetitive-motion injuries, according to the Occupational Safety and Health Administration (OSHA). </p>
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<figure class="wp-block-image size-large is-resized"><img src="https://www.business.com/_next/image/?url=https%3A%2F%2Fimages.business.com%2Fapp%2Fuploads%2F2022%2F03%2F23030929%2Fworkers-comp-insurance-five-factors-3.png&amp;w=480&amp;q=75" style="width:363px;height:auto"/></figure>
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<h3 class="wp-block-heading">What are the financial risks?</h3>
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<p>Some cities and states have higher costs of living than others. That means employees need to earn more to achieve a similar standard of living. It also means the uninsured costs of medical treatment are higher. Therefore, their losses due to injuries on the job are higher than if they were employed in a different city or state, and they will need more workers’ comp.</p>
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<p>Not having workers’ comp insurance can pose a massive risk to you, your employees and your business. Penalties vary by state, but Lovejoy said that in states where the National Council on Compensation Insurance (NCCI) regulates workers’ comp, it retains the power to assess and fine past premiums for workers’ comp coverage that should have been in place, in addition to fines placed by the state government.</p>
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<h3 class="wp-block-heading">How many people does your business employ?</h3>
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<p>Though a business’s size is not a direct component of the equation that insurers use to determine premiums, it does correlate with its risk. More employees mean more people who could theoretically injure themselves on the job and file a workers’ comp claim. This higher theoretical number of claims may compel insurers to increase your premiums.</p>
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<h2 class="wp-block-heading">How much does workers’ compensation insurance cost?</h2>
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<p>The cost of workers’ compensation insurance varies widely by industry and job type. Employers pay $45 per month, on average, in workers’ compensation insurance, according to Insureon. However, rates also vary by state. For example, California averages $62 per month, while Utah averages about $45 per month.</p>
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<p>If you are shopping for a workers’ comp insurance representative, there are some questions to ask the prospective broker. You should compare prices, coverage and reputation. You’ll want an agent who answers your calls quickly and understands both your state’s requirements and the specific hazards of your industry. </p>
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<p>You should also know your experience modification rate (EMR), which Lovejoy said is calculated and applied by the NCCI and is essential to determining your workers’ comp cost.</p>
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<p>“The NCCI is the authority that looks at a company’s claims history and makes a projection of its risks based on the business itself and national trends of that industry,” Lovejoy said.</p>
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<p>FYI</p>
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<p>The NCCI does not govern all states. Some states have their own bureaus that serve the same functions as the NCCI.</p>
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<p>John Espenschied, agency principal and owner at Insurance Brokers Group, recommended shopping around for your workers’ compensation insurance.</p>
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<p>“Each insurance carrier will have different risk appetites for business,” he said. “Some companies will consider high-risk companies like roofers, while other companies will never offer workers’ compensation for a roofing business. This means the rates can fluctuate between one carrier and another.”</p>
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<h2 class="wp-block-heading">How are workers’ compensation premiums calculated?</h2>
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<p>Insurers determine the appropriate workers’ compensation premiums to charge a business by assessing three key factors: payroll, classification rate and EMR.</p>
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<li><strong>Payroll: </strong>Workers’ comp insurers calculate premiums per $100 of your business’s payroll. The amount your workers’ comp insurance costs for every $100 of payroll varies by state, based on guidance from the NCCI. That said, a high-risk business in a low-premium state may ultimately pay more than a low-risk one in a high-premium state. Your risk is the product of the next two factors.</li>
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<li><strong>Classification rate: </strong>This is the formal term for the type of work your team performs, which helps insurers determine your risk. Companies whose employees mostly perform desk jobs are considered low-risk, but businesses that specialize in dangerous manual labor, such as construction companies, are at a higher risk. The NCCI keeps a running list of classification rates and risk levels that insurers use in their calculations of workers’ compensation insurance costs.</li>
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<li><strong>EMR: </strong>Your experience modification rate is a formal representation of your company’s workers’ comp claims history. The more extensive your claims history, the more risk insurers will ascribe to you, which, in turn, raises your premiums.</li>
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<p>Insurers combine these three factors into this workers’ compensation insurance cost formula:</p>
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<p>Classification Rate x EMR x (Payroll ÷ 100) = Premium</p>
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<h2 class="wp-block-heading">How to save on workers’ compensation insurance costs</h2>
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<p>It’s understandable if you find these workers’ comp premium criteria worrisome; after all, you don’t have full control over how risky your company’s type of work is. You might also feel that being penalized for previous claims adds insult to injury, though this model is the foundation of all types of insurance. However, there are some ways to lower your workers’ comp premium.</p>
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<h3 class="wp-block-heading">Train your employees in workplace safety.</h3>
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<p>Whether your company comprises mostly desk workers or manual laborers, workplace safety training always decreases the chance of employee injuries, which, in turn, decreases the chance of lawsuits and negative impacts to your workforce. As your number of workplace injuries and illnesses decreases, your EMR appears less risky to insurers, resulting in lower premiums.&nbsp;</p>
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<p>Match safety training with safety equipment.</p>
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<p>If your team works around hazardous materials, make sure your employees have gloves, hazmat suits and other equipment that prevents hazardous exposure. A well-protected team is less likely to file workers’ comp claims. </p>
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<h3 class="wp-block-heading">Find hazards and address them now.</h3>
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<p>Don’t wait for a potential hazard to become an actual one; that’s how you wind up with excessive workers’ comp claims that drive up your premiums. Instead, pinpoint your current workplace hazards and resolve them now, before they lead to harm. This could be as time-consuming as upgrading essential equipment that’s in decline, or as simple as moving extension cords out of the way to reduce the potential for tripping.</p>
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<h3 class="wp-block-heading">Pay premiums annually instead of monthly.</h3>
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<p>Maybe you’ve seen a company, whether an insurer or a software provider, offer pricing with phrasing like “$10 a month if billed monthly or $8 a month if billed annually.” The question then becomes whether committing to 12 months of service is too much of a gamble. Because you do need workers’ comp, you’re better off paying for the full year and getting the discount. The cost savings may be worth any dissatisfaction you might feel with your insurer.</p>
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<h2 class="wp-block-heading">Best workers’ compensation insurance practices</h2>
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<p>Here are some best practices for managing your workers’ compensation insurance.&nbsp;</p>
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<h3 class="wp-block-heading">Review your policies regularly.</h3>
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<p>Review your workers’ comp policies annually to make sure they are still adequate. You may have hired more employees, added locations or changed some of your business processes, and it is important to mitigate your current risk.</p>
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<h3 class="wp-block-heading">Keep current on insurance premiums.</h3>
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<p>Make sure your workers’ compensation insurance premiums are paid on time so you don’t have a lapse in coverage.</p>
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<h3 class="wp-block-heading">Communicate.</h3>
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<p>Make all your employees well aware of what is covered under workers’ comp, what they are entitled to in the event of a work-related illness or injury, how to report a work-related illness or injury, and how the business can support them.</p>
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<h3 class="wp-block-heading">Help injured employees get medical care.</h3>
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<p>If the injury is serious, assist the employee in obtaining emergency medical care right away. If it’s less urgent, ask the employee if they have a doctor to see. Reference your workers’ compensation policy and applicable state laws regarding guidelines for helping employees get a medical evaluation and care.</p>
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<h3 class="wp-block-heading">Launch an immediate investigation.</h3>
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<p>Once an incident has happened, the company should launch an investigation to find out exactly what happened and why. Witnesses tend to forget details once 48 hours have passed, so the sooner, the better. Quick action makes it easier to determine the cause of the injury while the incident is still fresh in people’s minds.&nbsp;</p>
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<h3 class="wp-block-heading">Take action to prevent additional injuries.</h3>
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<p>Once you have determined the cause of the injury, you need to ensure this kind of incident does not happen again. Steps may include cleaning up spills, barricading the area, adding signage, and installing handrails and other safety equipment. “Installing appropriate safety equipment not only lets you comply with OSHA and other regulations, but it is also an investment in your employees, uninterrupted operations and corporate risk reduction,” said Anthony Dublino, regional area manager for SafeRack.</p>
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<h3 class="wp-block-heading">Encourage early intervention.</h3>
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<p>As soon as the company becomes aware of an injury on the job, you should report the injury and submit a claim. This will fast-track the claim processing, reduce the worker’s anxiety, and show that the company has the worker’s best interests at heart. When workers feel cared for, they are less likely to hire an attorney and pursue legal remedies. </p>
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<h3 class="wp-block-heading">Create return-to-work programs.</h3>
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<p>Lovejoy recommended creating a program specifically for employees who are returning to work after an illness or injury.</p>
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<p>“Companies should have a formal ‘return to light duty’ program,” he said. “If employees are not fit to return to their normal job duties, they can still return to work and perform modified duties and, as such, reduce the overall claim amount.” This is good for the employee, who will be less isolated, and for the company that has the benefit of the employee’s expertise. </p>
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<p>Kimberlee Leonard and Jennifer Dublino contributed to this article. Source interviews were conducted for a previous version of this article.</p>
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<p>To read the full article, <a href="https://www.business.com/insurance/coverage-amounts/">click here</a>.</p>
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