Workers’ Compensation Insurance: A Legal Requirement for Most Employers

Pedro Ponce | Oct 18, 2023 | minute read

workers comp insurancePicture this: a safety net in place to protect your valued team members when the unexpected happens on the job. That's precisely what workers' compensation insurance offers – a crucial safety measure that most employers can't do without.

Workers' compensation insurance steps in when illness or injury strikes on the job, making it a must-have for most employers. Employers have a responsibility to comply with the workers’ compensation laws in their states. But it's not just about legal compliance; workers’ compensation benefits both employees and employers in various ways. That's why all employers should consider adding a workers’ compensation policy to their overall business insurance needs.

The History of Workers’ Compensation

Today’s working conditions are fairly good for most workers in the United States, but it wasn’t always that way.

Due to advancements brought about by the Industrial Revolution, many farming communities started transforming into industrialized, urban communities to enable people to live simply and easily.

Unfortunately, the Industrial Revolution also brought about a surge in injuries and fatalities in workplaces. Few safety measures were in place at the time, and workers faced serious risks of injuries and illnesses while working. Workers had no legal protection, and employers generally failed to compensate them for injuries.

The 1911 Wisconsin Workers’ Compensation Act is considered the first workers’ compensation law. The law outlined a no-fault system where injured employees could receive compensation regardless of whether they or their employer was negligent. Employees could collect medical benefits, lost wages, and payments for vocational rehabilitation under the law. This law served as a model for other states to offer workers’ compensation benefits to employees.

By 1959, all states had established some form of workers’ compensation insurance, and the federal government established a plan for federal employees, longshoremen, and other workers.

Today, worker’s compensation laws are a critical safety net for workers to give them financial support after having an accident on the job.

What’s the Legal Requirement for Employers

State workers’ compensation laws are established at the state level except for certain employees. Most employers must purchase worker’s compensation for some employees, but they may not have to cover all employees.

The federal government offers workers’ compensation benefits to specific groups of workers such as the following:

  • Federal employees
  • Longshoremen
  • Coal miners
  • Energy employees

Depending on the applicable jurisdiction, the following types of workers may be exempt from workers’ compensation insurance:

  • Independent contractors
  • Business owners
  • Certain agricultural workers
  • Very small businesses with a limited number of employees
  • Clergy members and workers in certain religious organizations

Employers that are mandated to provide workers’ compensation and fail to do so risk getting penalties or fines from the government. The failure to comply with workers’ compensation mandates can also lead to costly lawsuits by injured workers. In such cases, employers may be liable for an employee’s medical costs, lost wages, and other out-of-pocket expenses.

Lastly, a workers’ compensation lawsuit may impact the employer’s reputation and credibility which could hurt profits.

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Benefits of Workers’ Compensation

Workers’ compensation protects ill or injured employees in several ways. For example, an injured worker can receive compensation for their medical bills and rehabilitation costs. They may also get a portion of their pre-injury earnings, and they may be entitled to job training. The overall benefit to employees is it allows them to focus on recovery and reduce their financial worries.

In protecting employees, workers’ compensation also protects employers. For example, workers’ compensation provides liability protection for employers which guards against the costs associated with lawsuits filed by an employee.

Furthermore, workers’ compensation can enhance employee retention by showing they’re committed to their employees’ well-being. According to CatalystRTW, 80% to 90% of workers would rather return to work than collect disability payments.

Finally, having a workers’ compensation plan helps employers improve relations with employees, labor unions, and regulatory bodies.

business safety

Factors that Affect Workers’ Compensation Premiums

Insurance companies take many things into account when calculating the rates for workers’ compensation.

One of the primary factors in workers’ compensation premiums is the employers’ payroll and the types of jobs their employees perform which determine the base rate. Employers who work in high-risk industries can expect higher premiums than lower-risk industries. Insurance companies also adjust premiums based on the number and severity of past workers’ compensation claims which is known as the Experience Modification Rate (EMR). The company’s location and size of the deductible also have a bearing on the premiums.

Safety programs may reduce the cost of workers’ compensation premiums. A cost-benefit analysis helps employers weigh the cost of workers’ compensation premiums against the potential premium savings by reducing liability and improving safety.

The Value of Workers’ Compensation for Your Business

Overall, workers’ compensation provides great value for your business as it shields you from unexpected lawsuits, helps improve employee retention and productivity, and promotes safety within the workplace. Insurers also play a valuable role in assisting you with claims processing and dispute resolution.

To learn more about how a workers’ compensation policy can protect your company, call one of our agents at the Leap Carpenter Kemps Agency today at 209-384-0727, or visit our website.

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About The Author

Pedro Ponce is a Commercial Insurance & Risk Advisor who has been representing his customers for over ten years. He holds a Certified Insurance Counselor designation and is currently working on becoming a Certified Risk Manager.

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