Workman's Compensation: Who Pays For It

Workman's compensation insurance, also known as "workman's comp"�, is a state-mandated insurance program designed to protect workers who have been injured on the job or rendered ill because of workplace conditions. All companies, with a few exceptions, are required to maintain this type of insurance coverage no matter where they are located "“ all 50 U.S. states require it. Although some details of workman's compensation coverage may differ slightly from state to state, the basics are fairly uniform.

Workman's compensation insurance typically consists of two parts: compensation for the worker and employer's liability coverage. The first covers the injured worker's medical bills, rehabilitation costs, lost wages and most other costs directly related to the injury, even if the injury was the employee's fault. Employer's liability, on the other hand, covers the employer's legal costs should an employee bring suit against the business.

The location and size of the business will determine what sort of workman's compensation policy an employer must carry. Most states allow employers to purchase their plans through a traditional insurance company. There are some states, however, that require the insurance be purchased exclusively through programs run by the state itself. North Dakota, Ohio, Washington, West Virginia and Wyoming all require the use of state-run workman's compensation programs. Puerto Rico and the U.S. Virgin Islands require this type of plan as well. Not all states that provide a state-run plan, however, demand that the companies within their jurisdiction use it exclusively. Arizona, California, Colorado, Idaho, Maryland, Michigan, Minnesota, Montana, New York, Oklahoma, Oregon, Pennsylvania and Utah all sponsor workman's compensation plans that compete with programs in the private sector.

In some U.S. states, a company that is big enough and reputable enough may create its own workman's compensation fund, without having to go through either the state or a private insurance carrier. The states that allow this option are: Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Maine, Maryland, Minnesota, Missouri, Montana, New Mexico, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas and Utah. Any company that is self-insured in this manner, however, must be authorized by the state.

Cost to the Employer

No matter where the coverage comes from, workman's compensation insurance is expensive for an employer. Indeed, American businesses pay over $100 billion in premiums each year. The coverage is wholly paid for by the employer, who is prohibited from passing any portion of the expense on to his or her employees.

The cost of workman's compensation insurance is dependent upon many factors. One important factor has to do with the classification of employees. Some employees are more expensive to cover than others because their jobs are considered more hazardous. For example, it costs more to cover a roofer than it does to cover a secretary because the roofer's job duties require more potentially risky behavior.

Two other important factors that determine the rise or fall of workman's compensation premiums are: the existence and implementation of a company's safety programs and its history of accident and injury. If an employer shows a concern for workplace safety and can prove that concern by keeping accidents down to a minimum, then the likelihood of a rise in premium rates is minimal.

Keeping Costs Down

There are many ways in which an employer can make sure that he or she is getting the lowest workman's compensation premium rate possible. The easiest way is for the employer to make sure that all workers are classified correctly. The premium rate for each classification is different "“ depending on the risk associated with it "“ and even the slightest error in classification can cost an employer dearly. For example, keyboard use is considered a somewhat risky behavior because of the possibility of developing carpal tunnel syndrome. If an office worker who does not use a keyboard is mistakenly classified as one who does, then the employer could be paying an unnecessary premium.

Another method of keeping workman's compensation premium costs down is for the employer to institute safety programs, seminars and workshops. Very few employees purposefully injure themselves in order to obtain benefits. Sometimes workplace injuries are simply the result of an unaware and uneducated workforce. So, if an employer's concern for workplace safety is evident and ever-present (posters, signs, announcements, etc.), safety issues are more likely to remain on the minds of the employees and accidents are less likely to occur "“ fewer accidents man lower premiums. An employer's overt preoccupation with safety also lets the insurance carrier know that he or she is doing everything possible to enforce employee safety. This often leads to lower premium rates as well.