Intro to workers' compensation
Workers’ compensation is a type of insurance that helps protect both employers and employees. It can compensate employees for some costs associated with work-related activities and can protect employers from liability lawsuits. It is mandatory in most states.
For applicable injuries, illnesses, and fatalities, workers’ compensation insurance can cover:
- Medical bills
- Prescription expenses
- Rehabilitation and recovery expenses
- Reimbursement of some missed wages
- Funeral and burial costs
Workers’ comp does not cover every accident that occurs at work. For example, it does not cover expenses for incidents that occur during time off the clock (such as during lunch), even if they occur at the workplace. It also does not cover incidents that occur while the employee is intoxicated or under the influence of drugs.
Workers’ comp payments occur only when an employee is injured or becomes ill as a direct result of completing work-related duties. Examples of potentially covered illnesses include:
- A janitorial worker contracting a skin rash because of exposure to harsh cleaning chemicals used at work
- An office worker developing carpal tunnel syndrome after years of using a non-ergonomic keyboard
- A warehouse worker experiencing a muscle strain or tear after slipping and falling on the warehouse floor
- A machinist losing a finger due to a machine malfunction
There are many more scenarios that could result in workers’ comp payments. The important thing to remember is that workers’ comp insurance is usually a “no-fault” insurance, meaning it does not matter whether the employer or the employee was at fault when the incident occurred.
What is Workers' Comp
Workers’ comp for employers
Workers’ compensation is insurance for a business. Although the business employees are the ones who receive compensation for work-related injuries or illnesses, the business owner is the person who actually pays for the workers’ comp policy. Premium rates—or, what a business owner pays every month to maintain active membership in the plan—vary widely by industry and state. To calculate workers’ comp premiums for businesses, insurance carriers use many different factors, including this standard formula:
- Total employee payroll x experience modification rate
This formula results in the net worker compensation rate that the employer pays to the insurance carrier. Each piece of the formula is important and plays an important role in determining the final premium.
The total employee payroll rate is one of the most important numbers in this formula. Insurance carriers use certain rates per every $100 in employee payroll, so the larger the payroll, the higher the total amount. This worker compensation rate changes state by state and by industry type, which is also known as the “class code.” High-risk jobs, like those in forestry work, result in higher premium costs than low-risk jobs, like those in retail work. This is because the risk of incurring an injury or fatality is higher at the high-risk jobs. That higher level of risk is then accounted for by charging a higher premium.
The experience modification rate is another important factor. This number is assigned to a company after several years of working with an insurance carrier. It is designed to reflect the actual level and severity of workers’ comp claims at that company. For instance, a company with only one, low-severity workers’ comp claim over several years may have a lower experience modification rate, or mod rate, which can act as a credit to their account, thus lowering their premium. This is a way of reinforcing safe workplaces and rewarding companies who have fewer or less severe claims. In contrast, a company with many workers’ comp claims over several years might have a higher mod rate, which can increase its premium.
How worker compensation rates are validated
Every year, at the end of the policy period, the insurance carrier will conduct a workers’ comp audit with the policy holding company. This audit serves several purposes:
- To confirm the experience modification rate
- To confirm the employee payroll
- To confirm employee class codes
Companies can experience considerable changes to their workforce within the span of a year. Insurance carriers want to make sure that the numbers used for premium estimates are as accurate as possible.
Employers should be prepared for these audits as the end of their policy period approaches. Insurance carriers may request the following information:
- Payroll records
- Employee timesheets
- Financial records, such as bank statements
- Tax records
- Total number of employees
- Subcontractor information
Insurance companies may also offer discounts or credits to the premium, depending on factors such as the mod rate and employee overtime. The final premium is calculated by the insurance carrier and communicated to the employer before the policy is ready for renewal.
Why CompSource Mutual
CompSource Mutual has offered Oklahoma insurance to businesses in the Sooner State for more than 85 years. We have expertise serving the businesses that keep Oklahoma running and can get you coverage that makes sense at a fair price. Our team is standing by to support you with top-notch service and coverage so that you can focus on what you do best.
Ready to get protected? Get a quote.
Which state has the highest worker compensation rate?
The worker compensation rate is the rate at which insurance companies bill businesses per $100 of their payroll. The states with the highest rates are Alaska and Wyoming, at nearly $2.00 per $100 of payroll.
How can a business calculate their workers' comp net rate?
A business can calculate its net worker compensation rate by multiplying the base rate (rate per $100 of payroll) by its experience modification rate. A company should check with its insurance carrier to see if there are any further discounts or charges on top this formula to get its final net rate.
What is a worker compensation rate?
A worker compensation rate is the rate at which an insurance company bills a business per $100 of its payroll. This rate may be multiplied by an experience modification rating, which will result in the net workers compensation rate. The experience modification rate may increase or decrease the net rate, depending on the classification.
How long does workers' comp last?
Workers’ comp payments to employees may last for days or years, depending on the injury. An employee with a temporary injury or illness may receive workers’ compensation for only a few days or weeks, depending on the severity. A permanent injury or impairment may result in longer term disability payments.
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