Workers’ compensation, also called workman’s comp, is a type of insurance that grants benefits to employees who are injured on the job or who develop a health condition related to their work duties. This insurance provides compensation for financial damages related to the incident, including healthcare expenses, lost wages, and any other losses.
This is a key concept for contractors and employers. According to research on workplace injuries from the Bureau of Labor Statistics, contractors working in the fields of natural resource management, construction, or maintenance have a work-related injury incidence rate that is 78.9% higher than the national average. Indeed, nearly 170,000 cases occur each year. That’s a big number, and the financial damages associated with these claims are considerable. This is part of the reason why state or local governments typically require contractors to have workers’ compensation insurance before hiring any staff.
To understand your options and rights, it’s important to get a clear understanding of who workers’ compensation protects and how it works. This article will provide insight on this topic and give you the information needed to understand how to address workplace injuries.
What Does Workers’ Compensation Cover?
In most states, businesses with employees must carry workers’ compensation coverage. Specifics vary from state to state, so you should review your state’s requirements to understand your legal obligations and rights. For instance, some states mandate that employers must have workers’ comp if they exceed a certain minimum number of employees, and others may waive this coverage requirement for particular fields of work. You can find a state-by-state comparison on the National Federation of Independent Business website.
Workers’ compensation differs from contractor or general liability insurance because it covers employees — not other individuals on a business’s premises. Any individual seeking a contractor license typically needs to furnish a certificate of insurance to complete the process, but workers’ compensation is not required unless a contractor is looking to hire others, either for an individual project or as permanent employees.
Workers’ compensation protects both employers and employees in a variety of different ways. When employees suffer an injury during work, they or their family may be financially compensated for the following damages, if applicable:
- Missed wages;
- Medical and ongoing care costs;
- Disability benefits;
- Accommodations for when the employee returns to work;
- Death benefits and funeral expenses.
Workers’ compensation applies to all types of disabilities — temporary, permanent, full, or partial. This includes occupational illnesses, such as those resulting from exposure to certain substances, as well as repetitive strain or stress injuries.
Note that injuries that occur outside of work or due to employee negligence (such as those resulting from intoxication or deliberate self-injury) may not be covered by this coverage. The length of workers’ comp benefits can also vary by state, you should look into your state’s regulations for more information.
This insurance also reduces employer liability for workplace injuries or illnesses resulting from work. Workers’ compensation protects employers from being sued by employees to cover such damages.
Are Independent Contractors Eligible for Workers’ Compensation Benefits?
Independent contractors are generally not covered for workers’ compensation benefits, and employers are not required to provide such coverage for 1099 contractors. Some states — Idaho and Oregon, among others — may require that contractors show evidence of both general liability and workers’ compensation coverage. These contractors may also be able to take advantage of self-employed health insurance to protect themselves from injuries on the job.
On a side note, keep in mind that some unscrupulous employers may misclassify employees as 1099 contractors in order to avoid paying for workers’ compensation. If a business can be proven to be engaging in this illegal practice, workers may be able to take legal action against them.
How Does Workers’ Compensation Work?
While employees can receive benefits through workers’ compensation claims, they are not expected to pay for this coverage; instead, employers are responsible for making payments to the insurance company providing it. In return, this protects the business from potential legal action resulting from workplace injuries.
For an injured employee to receive workers’ compensation benefits, they must follow their state’s claims process. This begins with the employee informing the employer that a work-related injury has occurred, making sure to be as specific as possible about the nature of the injury and when it occurred. The employer must file a claim with the insurer and guide the injured individual through the process. This must generally be completed within a specified time frame or the claim may be denied.
The process for filing a worker’s comp claim is complex, and it differs from state to state. It’s important to look into your state’s claims process, as this can guide future decisions. For instance, if you work in one state and live in another, you may be able to choose to file in either state. In this scenario, you may want to pick the area with the simpler claims process.
Finally, workers’ comp benefits are generally not taxable. Individuals who also receive Social Security disability insurance or supplemental security income, however, may have a portion of their benefits taxed.
How Much Does Workers’ Compensation Cost?
The cost of workers’ compensation coverage for businesses can vary depending on many factors. This includes the industry that the business is in, the size of the business, the business’s claims history, state laws regarding coverage, and more.
The National Council on Compensation Insurance (NCCI) classifies various fields of work into different categories, and this classification provides guidance for the base rates for coverage. For example, while coverage per employee in clerical jobs can be just over $30 per year, professional painters may have coverage costs closer to $3,000 per year. While these figures are mere approximations and continue to change, this illustrates how much coverage costs can vary.
The NCCI also reports that the average cost of a workers’ comp claim is approximately $40,000, though the exact cost of a claim will vary depending on the nature of the injury. A case involving carpal tunnel syndrome, for example, will be substantially cheaper than a claim involving amputation or a head injury.
Best Practices for Handling Work-Related Injuries
Whether you’re an employer or a worker, there are some best practices you should follow to minimize your risk resulting from workplace injuries:
- Follow workplace safety guidelines: There must be clear safety rules for employees and contractors to follow. Even though contractors must know safety best practices in order to pass their licensing exam, clear guidelines can help reinforce them. Injuries resulting from negligence may not be covered under workers’ compensation coverage, so contractors must vigilantly follow these rules to avoid being involved in a costly accident that they may be unable to collect damages for.
- Invest in risk assessment and contractor training: Risk management is a vital concept for contractors, and the best way to handle injuries at work is to prevent them from happening in the first place. You can do this by adequately assessing tasks and specific jobs for any potential risks, then taking steps to mitigate them. Further, you can invest time and resources into adequate training to ensure everyone involved in a project knows how to perform their duties safely.
- Talk about safety: Employers and employees themselves should continually assess their performance — not only for quality and efficiency, but for safety as well — and openly discuss risks. Fellow contractors should also be watchful for unsafe practices and reinforce correct procedures. Open communication about safety risks can help every stakeholder understand potential hazards and take action to avoid them.
- Promptly follow the claims process as outlined by the state: Every workers’ compensation claim must be handled in the manner outlined in your state’s regulations to keep all parties protected. Responding to an injury in any other manner may result in increased legal liability for the business and decreased chances of a successful claim for employees.
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