Worker's Compensation

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About Workers Compensation

Worker's Compensation, otherwise known as Workers’ Compensation Insurance, is a mandatory type of insurance carried by employers. It is required by law in many states, and is designed to ensure payments to employees should there be an injury in the workplace. Workers’ Compensation protects your business from getting sued by your employees, should there be a work related injury or illness.

Definition

Workers’ Compensation is a mandatory insurance contract designed to provide medical benefits to employees injured while working on the job and at the same time protects the employers from getting sued by the employees and/or their family members because of that injury. It also provides the injured employee their lost wages owing to the injury, and disability and/or death benefits resulting from that injury if required. It is a coverage mandated by most state laws for the employer to have adequate Workers’ Compensation benefits in place for their business to go on when the number of employees reach a certain level.

Applicability

As per the different state laws, it is a mandatory obligation for all employers to report the number and type of employees (full time employees, contractors etc.) for a business and then obtain the required Workers Compensation policies from the valid insurance provider. It is provided by state-authorized insurance companies or it can bought from any insurer in the market.

Here is a brief view of the eligibility criteria based on the business size and the employee types to get this benefit:

Employee criteria of eligibility
If the employment type is an Independent Contractor,, in most cases, the employer is not mandated to provide Workers’ Compensation benefit as opposed to a Full Time Employee (FTEs).

Employer criteria of eligibility
The Employers’ criterion is the number of FTEs the business has, except for the owner(s). Most states exclude the following types of businesses to purchase Workers Compensation, when there’s no other FTE than the owner(s):

  1. Sole Proprietorship
  2. Partnerships

Many states maintain a minimum threshold number of FTEs for a business to require Workers’ Compensation purchased. The number varies from one state to another and can be anything from 3-5 FTEs. It is an optional benefit only in Texas, so no business owner is required to purchase the Workers’ Compensation Insurance by law, irrespective of the number of employees.

Also, in some states, if the business is run by an owner’s immediate family members (i.e.: parents, spouse and/or children), they may not be counted as employees eligible for mandatory Workers’ Compensation coverage. However, this rule does not extend to other family members (i.e: siblings, in-laws etc.), so the owner has to buy adequate coverage for each such employee as mandated by the local jurisdiction there.

Importance

Different states dictate the details of Workers’ Compensation laws differently. The mandatory eligibility criteria, the total insurance provider, the premium rates and the exact amount of coverage vary across the states. The basic concept remains the same so the benefits continue to help injured workers as well as their employers everywhere.

Employee’s benefits

  • If an employee gets injured on the job, their medical expenses for treatment etc. are covered in this insurance policy. It also provides a sum of money (as per the contract’s provisions) to cover the lost income due to this injury.
  • If the injury is severe and affects them into disability and/or death, the employees (or their family members in the second case) will receive disability benefits or death benefits from the policy.

Employee’s benefits
Even though the employer is obligated to obtain the coverage for each of the employees, pay the premiums, and report any incident with due diligence to the state authorities, it’s more beneficial for them than an obligation. This policy ensures that the employees and/or their families will not be able to press legal charges or claim money for their on-the-job injuries from the owner. The business capital gets protected from unnecessary dents, which can be quite substantial

Points to note

Since this is a state mandate for many business owners, the penalty of any mistake and/or negligence on the employer’s part can be quite severe. It is always advisable to be proactive on the compliance than be reactive and face penalties afterwards.