Published April 18, 2023 • 7 minute read
In the event of a workplace injury, this insurance policy covers medical care, lost wages, and other expenses during rehabilitation.
In this helpful explainer, we’ll review everything you need to know about workers’ comp insurance, who needs it, where to get it, and so much more.
What Is Workers’ Comp Insurance?
Also known as workers’ compensation or workman’s comp, this insurance policy covers costs resulting from workplace injuries, including medical care, lost wages, and rehabilitation. If a worker dies from the injury, it may also pay funeral expenses.
The policy should apply if the injury occurs at work or while the employee is acting on behalf of the employer, such as while running a work-related errand. In addition to run-of-the-mill physical injuries, it may also cover injuries from violence, terrorism and natural disasters, and illnesses resulting from workplace exposures.
While some business owners might think their commercial general liability (CGL) or employee health insurance will cover these expenses, most policies exclude employee workplace injuries. If your employee is hurt and you lack workers’ comp, they may sue you or bear the financial burden themselves.
Workers’ comp laws vary by state, so work with local experts to weigh insurance needs and determine which requirements apply. Nearly all states require businesses to hold a policy to protect employees, but exact stipulations, exclusions, and fines for noncompliance vary.
What Does Workers’ Comp Cover?
Just as individual insurance policies vary by contract, workers’ comp coverage also depends on the policy terms. Coverage areas might include:
- Workplace Injuries
- Medical Care
- Lost Wages
- Funeral Expenses
- Injuries From Violence, Terrorism & Natural Disasters
- Illnesses Resulting From Workplace Exposures
What Workers Comp Doesn’t Cover
That being said, workers’ comp doesn’t safeguard you from all potential issues.
It will not protect against employee lawsuits for:
- Gross Negligence
- Malicious Intent
- Wrongful Termination
- Failure to Promote
- Intentional Injury
- Emotional Injury
- Injury Resulting From a Fight Caused by an Employee
- Injury Occurring During Commute or Intoxication
What Is a Workers’ Comp Settlement?
After an injury, the employee must report the incident usually within 72 hours to two years to claim benefits and reach a workers’ comp settlement.
These repayments are usually awarded either in one lump sum or a structured payment plan, and businesses should take the following steps between the incident and reaching the settlement:
- Provide Prompt Medical Attention: Ensure the employee receives proper medical care for the injury.
- Conduct an Investigation: Audit the incident for potential safety issues and make any necessary improvements.
- File a Claim: File the claim to your workers’ comp board to process benefits.
Who Needs Workers’ Comp?
Most businesses are required to carry workers’ comp. However, it’s particularly important if workers perform tasks that increase risk of sprains and strains, which account for more than 30% of workplace injuries.
Other causes also include manual labor and moving materials. Slips and falls are the second most common cause of workers’ compensation cases, and these can occur in virtually any industry.
Many states require employers to provide coverage for full-time employees. However, some exclusions may apply, especially for:
- Casual Workers
- Employees Working on Commission
- Family Members
- Part-Time Workers
- Real Estate Agents
- Insurance Agents
- Business Owners
Some states do not require workers’ compensation for businesses with few employees.
Where to Get Workers’ Comp
Depending on your state, you can get workers’ compensation from either an insurance company or state-run agency.
- Private companies frequently offer more competitive rates and enhanced customer service.
- State-funded programs may be able to provide coverage if a private company rejects your business.
- Competitive state-funded workers’ comp acts as an alternative to private carriers.
What Are the Monopolistic Work Comp States?
In several states, businesses must purchase workers’ compensation through a monopolistic state program, which means they cannot shop around for other policy options.
Ohio, Wyoming, Washington, and North Dakota are monopolistic states because they prevent private insurers from selling workers’ compensation. If residents of these states wish to purchase a policy, they must do so from a state-operated insurance fund.
Note that not all policies apply across state lines, so if you operate in multiple states, you may need several policies.
How Do Businesses Benefit From Workers’ Comp?
State laws typically require companies to hold workers’ comp policies, but there are other potential benefits to a business beyond compliance, including:
A policy can help your workers get the care they need so they can return to their roles or find new ones.
It can also limit your company’s liability in lawsuits resulting from workplace injuries or illnesses. When employees receive compensation, they generally forfeit their rights to sue. Without coverage, an employee may file a lawsuit to recoup medical expenses and lost income.
Protects Business Losses
Workers’ comp funds make it impossible for employees to double dip in injury cases. Once they accept payment from the workers’ comp fund, they aren’t allowed to file a private suit, as well. If your insurance is up to date, it provides a huge buffer against bogus claims.
Protects Employee Livelihoods
Its main purpose is to ensure the injured party doesn’t have to jump through hoops to get their bills paid, so businesses are penalized for late payments. Even if the injury and incident in question may have been quite painful, workers’ comp insurance strives to make the aftermath as painless as possible.
Do I Need Workers’ Comp For Contractors?
State laws dictate whether you’re obligated to provide workers’ comp for contractors. To avoid costly fines, verify your contractors don’t qualify as employees according to workers’ comp laws.
These laws vary between states and do not always follow the same guidelines as the Internal Revenue Service (IRS), so pay careful attention to the wording to ensure compliance.
If your contractors are not covered by your policy, limit your exposure by contractually requiring them to hold their own workers’ comp coverage.
Nearly all outside vendors should have policies in place to protect their employees. Request certificates of insurance (COIs) for these to ensure everything is up to date and you’re protected if one of their employees is injured while working for you.
A Workers’ Comp Nightmare
Perhaps the best way to convey how important the work of a vendor management service such as BCS can be is to share the following case that ended tragically with the death of a hard-working family man in California.
On Dec. 20, 2003, a Ralph’s Grocery employee named Charles Romano injured his shoulder and cervical spine while restocking shelves. After finally undergoing surgery for his injury in August 2005, Romano contracted methicillin-resistant Staphylococcus Aureus (MRSA), an infection that causes renal and pulmonary failure. If that wasn’t bad enough, Romano also became paralyzed from the shoulders down.
While Romano sought treatment for this debilitating infection, the third-party insurance administrator refused to grant payment for the procedure. Instead, Romano had to opt into Medi-Cal, California’s version of Medicaid. Even when a workers’ compensation judge forced Ralph’s and the insurance company to cover this “compensable consequence,” they failed to comply. For whatever reason, the ruling was ignored, denying and delaying treatment for Romano. As a result, he passed away on May 2, 2008, with the bills still unpaid.
Sedgwick Claims Management Services (CMS), the third-party administrator, was referred to the Division of Workers’ Compensation’s Audit Unit for “unreasonably delaying or denying treatment to a patient who was dying from an infection he contracted after undergoing surgery for a compensable work injury.” This passive approach to such a critical case cost Sedgwick thousands of dollars and their reputation; not to mention the inappropriate death of Romano.
Friends of Romano, along with the Central Coast Chapter of the California Applicant Attorney Association, additionally sought criminal charges against Sedgwick CMS and its claim adjuster on Romano’s case.
The prompt and proper treatment of workers’ comp claims is a necessary first step in preventing similar tragedies. While Charles Romano’s death is a tragic extreme, it’s a humbling example of how quickly insurance claims can get out of hand.
If any skeptics remain, let us outline a more realistic scenario that can still wreak havoc on your company’s bottom line. Thankfully, it’s another easily preventable situation:
You send an injured employee to the emergency room and realize you don’t have the required workers’ comp insurance. Coverage could have simply lapsed, or the initial processing could have been mishandled. Either way, your company’s situation just became substantially more urgent.
BCS Knows Workers’ Comp
Workers’ comp ensures your employees are financially supported to get the care they need, when they need it most.
Whether a severe instance of negligence or a simple clerical oversight, lapses in workers’ comp jeopardize safety and compliance—and it’s in your best interest to avoid them at all costs.
So, while you’re focused on growing your business, BCS handles all aspects of workers’ comp for you.
Our skilled auditors routinely examine insurance paperwork to ensure it’s up to date, simplify document tracking and storage with an easy-to-use app, and so much more.
Yes, accidents happen—and if real life is indicative of anything, it’s that disaster can strike at the most inopportune moments.
BCS's full-service solution ensures you’re prepared for the worst.
BCS is a leading full- and self-service vendor management solution to simplify your document tracking, maintenance, and all your essential third-party processes. To learn more about maintaining compliance and safety with BCS, contact us today or schedule a demo.