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What is Workers’ Compensation?

By November 22, 2022November 28th, 2022Insurance

Workers’ compensation insurance covers employees for injuries or illness that happen on the job. 

Most employers are required to carry workers’ compensation by law. The majority of employers who are not required still choose to do so. This is because a workers’ compensation policy is viewed as 1) an inexpensive safety net to avoid catastrophic financial loss, and 2) goodwill towards employees.

As an independent insurance agency invested in and committed to improving the customer experience, Fortis Insurance Partners is making it quick, easy, and affordable to get the right coverage.

What is workers’ compensation?

Workers’ compensation is a common insurance policy that indemnifies employees for injuries or illness that happen on the job.

Workers’ compensation is a no-fault policy, meaning there does not need to be any wrongdoing for coverage to apply. Unlike other insurance policies, workers’ compensation does not have defined policy limits. Claims can range from hundreds to millions of dollars.

There are two parts to a standard workers’ compensation policy: Part A and Part B.

Part A covers employees’ medical expenses, lost wages, and death benefits for accidents that happen in the normal course of work; this includes during work-related travel.

– Claim example: A painter falls off the ladder and breaks her arm. Workers’ compensation will pay for her medical bills and a portion of lost wages for the time she missed work. –

Part B, also known as Employer’s Liability covers the employer against claims of fault or negligence leading to the injury. This includes legal defense costs and settlement payments. Unlike Part A, Employer’s Liability does have policy limits. These limits typically range from $100k – $2M per accident, $500k – $2M per policy, and $100k – $2M per employee.

When employees receive workers’ compensation benefits, they usually agree not to sue their employers, so claims against Employer’s Liability are relatively rare. Examples of EL claims are: third-party-over action lawsuits, loss of consortium lawsuits, dual-capacity lawsuits, and consequential bodily injury lawsuits.

Do I need workers’ compensation?

In 49 states it is required by law, with each state regulating workers’ compensation differently. The National Federation of Independent Business provides a detailed breakdown of requirements by state. Failure to meet your state’s requirements can lead to fines, penalties, and in some cases, criminal charges.

Texas is the only state that does not require an employer to carry workers’ compensation insurance, with some exceptions. 

When an employer in Texas chooses not to provide workers’ compensation, it is called being a “non-subscriber”. This leaves the employer at risk for personal injury lawsuits from employees who are injured on the job. The damages and legal fees are almost unlimited.

Looking at historical workers’ compensation claims payments, it’s no wonder over 80 percent of employees in Texas are provided coverage by their employers.

Additionally, it is good business practice to provide coverage for your employees.

How much does workers’ compensation cost?

Workers’ compensation premium is calculated as rate (per $100) x total payroll. There are other cost factors, such as a company’s location, experience modifier, and other factors which can increase or decrease premium. These additional factors are unique to each company and situation so we will not cover them here.

Rate is determined by the type of work the employee performs.

For example, in Texas, a roofing contractor rate (WC class 5551) can range from $4.36 to $21.28 per $100 in payroll while a clerical employee rate (WC class 8810) can range from $0.07 to $0.26 per $100 in payroll.

Using the mean from each rate example, if the payroll for the roofers is $100,000, then the premium would be $12,820 (12.82 x $100,000/$100). Similarly, the premium for the clerical employees would be $170 (0.17 x $100,000/$100).

If the same company employs both roofers and clerical employees, then the premium for each job type would be calculated and then added together.

Why Fortis?

As an independent insurance agency invested in and committed to improving the customer experience, Fortis Insurance Partners is making it quick, easy, and affordable to get the right insurance coverage.

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The information on this page should not be construed as specific legal, HR, financial, or insurance advice and is not a guarantee of coverage. In the event of a loss or claim, coverage determinations will be subject to the policy language, and any potential claim payment will be determined following a claim investigation.