What is Workers’ Compensation Insurance?
Posted by zocalo on February 23, 2009
Workers’ compensation insurance is a form of insurance that provides medical care for workers who are hurt while doing their job duties. Started in Germany in the 1800’s, workers’ compensation insurance responds to a need for workers to be insured against economic hardship in the event of injury while working for their employer. In exchange for this insurance, the employees relinquish their right to sue the company for punitive damages due to negligence and general damages for pain and suffering, in a tradeoff known as “the compensation bargain”.
Workers’ compensation insurance is often distributed to the injured worker as weekly checks in place of wages, thus acting as a type of disability insurance. There may be additional insurance paid for economic loss (past, present, and future), medical expenses (a type of health insurance), and benefits to the dependents of workers killed during employment (a type of life insurance).
The cost of workers’ compensation insurance is determined by the workers’ compensation board of the respective province. Base rates do vary from province to province, but the process each province uses to calculate base rates is very similar.
In order to determine base rate, risk classification must first be determined. Every job occupation is assigned a risk classification, which is dependent by two statistical factors: the frequency of on-the-job injury and the extent of injury. Severity is determined by medical payments and indemnity benefits. Once assigned a dollar sum, the risk classification of a given profession is multiplied by 1 percent per $100 of the employee’s payroll in order to achieve base rate. For example, an administrative assistant’s risk classification is roughly $1.25 per $100 paid. If this person receives $650 per week, the workers’ compensation insurance premium for that person runs about $8.13 every week.
The base rate may be reduced with time depending on the employee’s safety history, and if the employer also provides health insurance. State workers’ compensation insurance will also change depending on that particular state’s safety history.
Workers’ compensation insurance is not a benefit of employment; rather, it is a right. Businesses are legally required to carry workers’ compensation insurance, and those that do not risk stiff legal penalties if detected. Policies may be bought from several places: private companies, state funds, insurance pools, and sometimes individual insurances.
On its own, workers’ compensation typically results in monetary loss for most insurance carriers. Many insurance companies balance for this deficit by requiring the business owner to purchase additional policies in addition to workers’ compensation.
Many states require that an official notice be displayed in the workplace informing employees about workers’ compensation and what payment is offered for job-related injuries. Business owners should check with regulatory offices or their city hall to find out if these notices are required to be posted; failure to post notices may result in a fine.
