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Workers' Compensation: A Complete Guide

Your employee’s safety should be at the utmost importance as a business owner. However, even if your taking the necessary precautions, accidents do occur.

To ensure employee safety, all business owners must provide workers’ compensation coverage to their staff by law. Workers' compensation insurance protects not only your injured employee, but also you, the company, from claims. They're a crucial part of your employee benefits package.

What is Workers Comp?

Workers' compensation is a "no-fault" mandatory insurance program that pays for medical treatment, wage replacement, and long-term disability benefits to employees who are injured on the job or develop a job-related illness. It also pays death benefits to the dependents of workers who died as a result of a work related injury. Regardless of who’s to blame, a wounded employee will still be compensated and receive benefits. Except in circumstances of intentional harm, the injured worker does not have the right to launch a civil action against the employer for pain and suffering or other damages in exchange for these guaranteed benefits.

Is Workers’ Comp Insurance Required?

If you have employees, you must have workers' compensation coverage, which is mandated by the Department of Labor. Workers' compensation insurance is typically required to be purchased as soon as your first employee is hired. In certain states, having at least one employee is needed; in others, having two or three employees may be required.

How is Workers Comp Calculated?

The workers comp cost takes into account the class codes used, the experience modifier and the business’s payroll. The workers comp cost can be calculated with the formula below:

Workers Comp Premium = (Payroll/$100) x Class Code Rate x Experience Mod Rate

However, this formula will only be a ballpark figure since different states may have varying rates.

How Much in Benefits is my Worker Entitled to?

The benefits are calculated and paid on the basis of the worker’s average weekly wage. The employee's daily compensation is multiplied by the number of days worked in a full year to arrive at this figure. The average weekly wage is calculated by dividing that number by 52 weeks.

For example, an employee made $50,000 last year, working 250 days out of the year when accounting for PTO, vacation, and sick leave, etc. When you do the math, this means the employee got paid $200 a day in gross income. Multiply that number by 260 (52 weeks x 5 days) or the number of days an employee would work in a full year.

Using this calculation, the employee would be entitled to $52,000 per year ($200 a day x 260 days). If the employee is totally disabled and can no longer work, they would regularly receive 60% of this wage.

When do Workers Comp Payments Start?

The disability benefits must begin as soon as possible. In many states, you must pay the employee's medical bills straight away, even if their workers' compensation claim has not yet been approved. Non-medical benefits like time loss compensation and permanent disability start after the claim has been approved.

When do Workers Comp Payments Stop?

The employer usually stops paying once the worker has made a full recovery from their workplace injury, but it may vary from state to state.

For example, Pennsylvania employees are eligible to receive workers comp benefits for up to 500 weeks, or until they are fully recovered and can return to work. In some cases, the workers comp coverage provider may offer a one-time lump sum in place of ongoing payments.

Do Employees have to be Injured on the Job?

In order for an employee to get workers comp benefits, the injury must be work related. OSHA defines work related as if an event or exposure in the work environment either caused or contributed to the resulting condition or significantly aggravated a pre-existing injury or illness.

For example, an employee's back injury sustained while loading boxes in a warehouse is an eligible work injury. It wouldn’t be considered a work injury if they got harmed while walking to the deli for a meal on their lunch break.

There is a bit of grey area and nuance to each individual case. If an employee was injured while driving a company vehicle or on a business trip paid for by the company, it may still be considered work-related. Each situation is different and may require a lawyer to make workers’ comp laws are being followed.

Does Workers’ Comp Cover Long Term Injuries?

Yes, workers’ comp covers any long-term injuries sustained while on the job as well as any illness that is developed due to working conditions. This includes scenarios such as bad heart conditions, lung disease or other illness caused by chemical exposures or stressors within the workplace. However, the employee is responsible for proving that these long-term ailments were directly caused by work related tasks.

If the employee suffers a permanent injury that hurts their ability to earn a living, they may receive permanent disability benefits.

Are Only Medical Bills Covered Under Workers’ Comp?

It depends. Workers’ comp coverage may also include physical therapy, prescription medications, and other medical equipment and treatment to help the employee recover. Lost wages may also be covered as the employee heals, along with court costs and attorney fees.

Is Workers’ Comp Different in Other States?

Yes, workers’ comp coverage is different for each state. For example, New York has the highest national premium rate at $3.08 per employee and North Dakota has the lowest rate at $0.82 per employee. Each state also has different definitions of what constitutes a covered employee.

Do Workers Need to be Notified Before Workers’ Comp Payments Can be Stopped?

The employee must be notified with 30 days notice before cutting off payments. The employee can hire a workers’ compensation attorney if they feel like the benefits are being cut off unjustly.

Can workers’ comp wages be garnished?

No, workers’ comp payments cannot be garnished. There may be certain exemptions, for example, workers’ compensation is classified as a garnishment if the injured employee owes spousal or child support in New York.

Are Workers’ Comp Payments Taxable?

If you paying out workers’ comp benefits to injured employees, then those premiums are tax deductible because the policy is a business expense.

How much does Workers’ Comp Coverage Cost?

Because workers' compensation insurance is controlled at the state level, the cost of the coverage will be determined by what state your employees are located. It also relies on the type of work that is being done. Physically demanding industries (like construction) and a history of work-related injury claims against the employer will result in higher premiums. The size of your company has an impact as well, with smaller companies paying less.

Cornerstone PEO offers a pay-as you-go workers’ comp solution that makes the process easier and cheaper. There’s no need for large upfront deposits, no confusion on how much you owe, and no audits when partnering with Cornerstone PEO.

The Cornerstone Advantage

Cornerstone PEO also actively works to make your workplace safer, limiting claims. In the result of the claim, Cornerstone PEO will take the penalty of the claim against their experience modifier, not the employer. Cornerstone not only, helps you through the claims process, but actively lowers your experience modifier, saving you money on workers’ compensation coverage.

To see how a PEO can help lower workers' comp costs, click here.

Like other PEOs, Cornerstone will help you save significantly on employee benefits, automate your payroll, lower your experience modifier, and help with certain employee related compliance. However, unlike other PEOs, our focus is on excellent customer service.

Other PEOs will just add you to their system and send you an invoice. At Cornerstone we assign a professional customer service rep to work with your account. This not only adds more of a human touch, but it also allows us to create custom solutions unique to your business. Got questions? We have a rep to help you answer them. A problem occurred? You have a rep who understands your business and can create an effective solution.

Contact us here for a FREE consultation.


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