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How does a workers’ comp claim affect an employer?

In the U.S., most businesses are required to carry workers’ compensation insurance. It’s been the law in every state since 1948, supported by employers who agreed to have insurance coverage because it saved them from expensive lawsuits.

The program worked. Today, it’s beneficial to employers to carry an insurance policy because the cost of injuries is higher than the cost of comp premiums. It also lets experienced carriers guide workers through medical care, lost wages, therapy, bills, disability benefits, and even death benefits.

Overall, workers’ compensation insurance is a relief to employers who would otherwise be liable for injuries as well as lost wages. But although insurance carriers are the ones who pay claims, business owners often dispute them. Why?

For the most part, employers are fighting rising insurance costs. But workers’ compensation claims are not bad for companies. Accidents and sickness are bad for companies—workers’ compensation claims help mitigate the worst of the damage.

Let’s look at how worker’s compensation claims work to see how they affect employers.

How workers’ compensation claims work

When you start a business, your workers’ compensation premiums are tied to payroll amounts and risk factors, also called class codes. There are over 800 total class codes, so it’s essential yours accurately reflect the work your employees do so that you’re paying the proper premium. Each class has its own rate per $100 in payroll.

As you grow, your rates will be tied to your company’s experience modification rate (called an EMR, MOD, or e-MOD). Your insurance company bases rates on your Occupational Safety and Health Association (OSHA) filings and industry averages. An EMR is just a multiplier for your rate. An EMR under 1 means your business is a safe bet for an insurance underwriter and your premiums are lower than normal. An EMR over 1 means your losses and risks are higher than average.

Multiple and severe injuries increase your premiums because they increase your EMR—and business owners want to avoid serious injuries to workers and their negative effect on EMR.

But accidents happen. And that’s where claims come in. Let’s say an employee in your restaurant’s kitchen scalds themselves when they spill a pot of boiling water. Their claim begins when they notify you of their work-related injury.

You tell the employee to seek medical care, and they go to the emergency room where they are treated for burns. They’ll have ongoing health care needs, and workers’ compensation medical benefits can help. They might miss work while they recover and need lost wage benefits. In the case of permanent disability, the workers’ compensation system will help the employee file for disability benefits.

What comes next? There can be multiple steps in filing a claim depending on your state. You’ll have to give your employee needed paperwork, complete a claim form for your insurer, and sometimes submit a report to your state’s workers’ compensation board. Your employee will document their medical treatment and may need to include witness testimony about what happened, along with their documented medical costs.

After a claim is filed, an injured employee can be paid worker’s compensation benefits once the employer and carrier agree that the injury was work-related. Your employee can also appeal the decision.

How your employer insurance policies affect claims

Workers’ compensation claims have advantages for employers. Filing a claim means employees give up their right to sue the employer in court. But new and expensive insurance claims can still mean higher premiums for employers. Here are 2 ways to minimize claims and claim amounts:

1) Set strict safety standards.

You’ll avoid claims in the first place when employees value safety first.

You’ll lower your claim amounts, too. This is because claims are not covered under workers’ compensation when employees are not following employer policies. For example, if you have a kitchen safety policy to clean up spills immediately, and a worker slips in some soup they forgot to mop, the carrier may reduce their benefit.

Use OSHA’s Small Business Safety and Health Handbook to set up safety policies for your workplace.

2) Bring injured employees back to work as soon as possible.

Be flexible in adjusting work requirements, finding accommodations, or offering reduced hours or light-duty tasks. Workers who return to work within your state’s waiting period (3 to 7 days depending on the state) make their claims medical-only.

Lost wages limits won’t limit employees, and you won’t need to hire temporary help to replace them.

How will a workers’ comp claim affect my business?

You can use OSHA’s $afety Pays Estimator to calculate the costs of potential claims on your business. Covering carpal tunnel syndrome to vision loss, it generates an estimate of the sales you’ll need to make up for a job injury.

Input something as straightforward as a restaurant worker’s burn into the calculator, and you’ll see that your direct costs total $47,192, with indirect expenses adding up to $99,103. At a 3% profit margin, you’d need over $3 million in additional sales to balance the costs of that injury.

What goes into these direct and indirect costs? Here’s a list:

  • Premium increase: Increased accidents and more severe injuries are likely to increase the risk of your business and increase premiums. Premiums typically take into account three years of business history, excluding the current year.
  • Cost of work lost: You may have expenses associated with the work stoppage due to an occupational injury. Further, getting back up to speed after work stoppage can be tricky. There can be long-term motivation losses for your entire team once a project shuts down and they need to get the ball rolling again after a period of time away.
  • Overtime costs: When other employees jump in to fill the gap left by your injured employee, you’ll face overtime costs. According to a study published in Injury Prevention, employers lose an average of 11 days per employee to workplace injury. If your burn employee took 11 days to recover, the overtime costs could be thousands of dollars.
  • Wages owed to an injured worker: While workers’ compensation coverage accounts for lost wages for an injured worker, your worker may have additional uncovered absences.
  • Fines: You could be fined by OSHA in the course of a workers’ compensation claim. OSHA can currently fine employers $13,653 per person exposed to a hazard. Fines go up to $136,532 per person for repeated or willful violations.
  • Business Loss: Public knowledge of an employee injury can deter community support for your business.
  • Administration and Business Costs: You’ll likely need to cover costs like documenting, filing, training, and hiring new employees.

8 reasons you shouldn’t go without workers’ comp insurance

Think claims can be expensive? Try going without workers’ comp insurance. Here are a few reasons why it makes sense to get coverage right from the beginning:

  1. It’s most often a requirement. Depending on your state, you’ll face penalties from fines to jail time. You can be convicted of a felony for noncompliance with workers’ compensation laws.
  2. Even if your state does not require workers’ comp, or you haven’t hired enough workers yet, you’ll still be liable if the workers you do have get sick or hurt on the job. You just won’t have insurance.
  3. Some states can enforce their compensation laws by issuing a “stop-work order” and removing your company from consideration from public contracts for years.
  4. What’s more expensive than premiums? Lawyers may protect you from civil lawsuits. You may also have to pay workers’ medical bills and lost wages on top of legal fees.
  5. A personal injury lawsuit won’t have caps on lost wages. You could have to pay total wages for an indefinite time (worker’s compensation claims have caps on both).
  6. Employees can also seek damages for emotional pain and suffering through personal injury lawsuits. That’s an added liability that is not included in workers’ comp coverage.
  7. A fine, lawsuit, or medical expenses could bankrupt your business.
  8. You could be quoted a higher rate when you finally get workers’ comp because of your coverage gap.

So while filing a workers’ compensation claim can financially impact employers, it’s nowhere near the damage they could face without insurance. Slips, falls, and injuries can’t be wiped out entirely. When they happen, insurance keeps you and your employees as protected as possible.

How can I get affordable workers’ comp insurance?

Going without workers’ compensation insurance can be expensive. But carrying coverage doesn’t have to be.

With workers’ compensation insurance, you’ll pay as little as $16 a month. Our online workers’ comp calculator can estimate your payments. You’ll probably pay less with Huckleberry, and you can get coverage as part of your small business insurance to protect your growing company. You’ll get a quote based on your unique business in less time than it takes to order some non-slip mats to protect your employees.


Disclaimer

All content on this page is for general informational purposes only and does not apply to any specific case, is not legal, tax or insurance advice and should not be relied upon. If you have any questions about the situation for your small business or the latest information in your state, you should contact an attorney for legal advice, an insurance agent or broker, and/or your state's labor or industry agency, board, commission or department. Please note that the information provided on this page may change at any time as a result of legislative action, court decisions or rules adopted or amended by any state or the federal government.

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