What is workman's comp?
A work compensation policy, or workman’s comp, is an essential part of running a business. In fact, in most states it is mandatory to carry workers’ compensation coverage. With a few exceptions, businesses that have employees on their payrolls must carry workers’ compensation insurance.
Workers’ compensation benefits can be applicable when an employee experiences a covered work-related injury, illness, or fatality. However, not all incidents are covered. For example, if the employee was found to be intoxicated while the accident occurred, it might not be covered by workman’s comp. Other exceptions may apply.
Covered expenses can include:
- Permanent partial disablement
- Temporary disablement
- Medical care from the injury or illness
- Partial replacement of income
- Death benefits
A minor injury, such as a wound that requires stitches, might only keep an employee out of work for a few days. If the employee incurred the wound while operating machinery at work, then medical expenses, such as the cost of getting the stitches, could be covered by workman’s comp. However, some injuries and ailments are more severe and might require longer-term coverage, or disability benefits. The way that insurance companies calculate these benefits is part of a complex process that accounts for many different factors.
How workers’ compensation coverage is calculated
The concept of workers’ compensation is fairly straightforward, but how costs are calculated and determined for each business can be complicated. This is why it can be invaluable to have support from a trusted insurance provider like CompSource Mutual.
Calculating how much workers’ compensation insurance costs requires the consideration of a number of different variables. To better answer “what is workman’s comp” and to discern its associated costs, it is important to contact a trusted insurance provider. CompSource Mutual’s top-notch team aims to demystify the workers’ comp insurance process and can help you get the answers that you need.
In order to find out how much workers’ compensation insurance costs, the insurance company will need to know:
- the employee payroll
- the industry in which the business operates
- the workers’ compensation modification rate
Several factors contribute to how much a business’s workers’ comp insurance premium will be. Typically, insurance premiums are calculated at a certain percentage rate per $100,000 of payroll. This rate may go up or down depending on the insurance provider and the class code or category the company falls into. Additionally, the level of risk associated with the type of work is a factor that affects insurance premiums. An industry like construction might have a higher premium due to its associated risks.
The workers’ compensation modification rate is a little different. This is a risk rating that is attributed to businesses that have longer histories of workers’ comp claims. The number may be higher for businesses with histories of more severe or frequent workers’ comp claims; a lower number may be assigned to a business with a relatively safer environment, with fewer or less severe claims.
Injured Worker Coverage
Understanding experience modification rate
A company’s mod rate for workers’ comp is a complex number. It is primarily based on the company’s history of workers’ comp claims. In sum, an employee that has fewer or less severe workers’ comp claims (or “loss experience”) might have a lower mod rate, or even receive a credit, while an employer with a higher “loss experience” might receive a higher number or a debit. This system helps incentivize safe workplaces and helps minimize workplace accidents and hazards.
Some significant factors that are taken into account when calculating an experience modification rate include:
- frequency of workers’ comp claims
- the severity of workers’ comp claims
- type of claim (medical-only or with replacement wages or other compensation)
- employer classification
Insurance companies consider these factors and figure out the total losses. Having many small claims may add up to the same amount as one or two large claims, so frequency alone cannot determine the entire mod rate. In fact, a business with a history of many small workers’ comp claims may indicate a pattern, which may increase the mod rate.
The experience modification rate also accounts for the business type. A small business may have a different mod rate than a large one, even if all other factors are similar. For example, one very severe and expensive claim can be weighed differently for a small business than a large business. This weighted system exists to help make sure that the costs of claims make sense for the businesses to which they apply.
Why CompSource Mutual
CompSource Mutual has served Oklahoma businesses – large and small – for more than eight decades. Our expertise spans hundreds of industries – so our team knows how to get you coverage that makes sense at a fair price. We’re proud to help protect Oklahoma workers because we serve the communities where we live. When you partner with us, you partner with neighbors.
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What is a workers' comp audit?
A workers’ comp audit is a mandatory review of a company’s payroll and other components that are relevant to the premium amount the company pays. At the end of the policy period, the insurance company will review the policyholder’s payroll and see whether it is more or less than the estimated payroll amount that was disclosed at the beginning of the policy period. For example, if a company discloses $100,000 in payroll expenses at the beginning of the policy period, but actually ends up having $200,000 in payroll expenses, it may owe more money at the end of the policy period. This is called the “final premium amount.”
What is workman's comp for small businesses?
Workman’s comp, or workers’ compensation, is a type of insurance that can compensate employees in the event of a covered work-related injury, illness, or fatality. In many states, it is mandatory for most businesses, even small businesses. Some exceptions are made for family-run businesses and companies with seasonal workers. However, most businesses with employees are required to carry workers’ compensation insurance. Still, many businesses – even those with exemptions – choose to carry workers’ compensation insurance to best protect their businesses and workers. For more information on the requirements in your state, contact your state government.
How common is workers' comp fraud?
Workers’ comp fraud is a very serious crime. However, it is not very common. Only 1-2% of all worker’s compensation claims are actually fraudulent.
Where can a business owner find their certificate of workers' compensation insurance?
The workers’ compensation insurance company should have a certificate of workers’ compensation insurance on file at all times. The business owner or supervisor can call the workers’ compensation insurance company to request this certificate when needed. If you’re a CompSource Mutual customer, you can request your certificate of insurance here.
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