Workers Compensation Insurance
Workers’ Compensation insurance is a mandatory type of insurance carried by many businesses. Workers’ compensation insurance protects employers from liability for on-the-job injuries resulting in employee disability or death, providing injured workers with monetary relief/ lost wages and medical benefits, or, in the case of death, survivor benefits to their dependents. Workers’ Comp insurance also protects companies from being sued by employees for workplace conditions that can cause an injury or illness.
The Workers’ Compensation Law became effective in New York on July 1, 1914. The law is administered by the NYS Workers’ Compensation Board and specifically spells out the employers obligations as well as who is covered by the law.
The New York Workers’ Compensation Act is compulsory for all private and public employers. Although there are exceptions, most employers of at least one person are required to carry coverage for their employees. Individual proprietors and partners themselves are not automatically covered; they may elect to be covered. The same is true for partners of Limited Liability Partnerships and Limited Liability Companies.
Officers of corporations are considered employees of the corporation; they are automatically covered.
If a corporation with one or two executive officers has employees requiring coverage, either one, or both, of the officers may elect to be excluded from coverage, provided the one or both officers own all of the issued and outstanding stock and hold all executive officer positions in the corporation.
Employers in New York State are required to meet their workers’ compensation insurance obligation by one of three ways:
- By insuring with a private insurance carrier (This is the best option)
- By self-insuring, or as a member of a self-insured trust. Employers who qualify to self-insure must follow the express requirements of the law and meet requisite financial standards.
- By insuring with the New York State Insurance Fund (This is the least option/last resort)
Employers must demonstrate compliance with the WC Law by prominently posting form C105 Notice of Compliance at each Employer’s place of business.
Who Needs Workers’ Comp Insurance?
Workers’ Comp insurance is required by law in almost every state. Workers’ comp laws are designed to ensure payment by employers for some part of the cost of injuries, or in some cases, of occupational diseases, received by employees in the course of their work.
Workers’ Comp Insurance Basics:
Workers’ Comp insurance typically only covers injuries or illnesses when they occur as a result of duties performed on the job or while at work. Examples of injuries that may be covered by Workers’ Comp insurance include injuries caused by lifting heavy equipment, slipping on a wet or oily surface, or sustaining injury due to fires or explosions. Many state workers’ comp programs do not provide coverage for injuries that occur while an employee is not acting within the scope of employment – such as while playing football with friends on a day off.
Understanding Workers’ Compensation Premium
When employers purchase workers’ compensation insurance with a carrier, the carrier assumes the employer’s statutory obligation to pay medical, indemnity and death benefits under the law.
Insurance companies base premium charges on assumed risk depending upon:
- Employer’s industry type
- Remuneration paid
- Prior claim history and/or potential liability for claims
There is a classification code for each type of industry or business, and, for each classification code, a manual rate. The manual rate for each classification code for New York is determined by the New York Compensation Insurance Rating Board (NYCIRB) based on the historical exposure (payroll and losses) and expenses for that specific classification.
Premium for each classification code is determined by multiplying a rate times a premium basis. Remuneration is the most common premium basis. This includes payroll and all other remuneration paid or payable during the policy period for the services of employees and all others engaged in work on behalf of the employer for which the carrier could be liable. The rate charged is based on every $100 dollars of remuneration.
For example: Premium for an employer who operates a fast food restaurant with $100,000 in annual payroll is determined as follows:
Classification Code Manual Rate x Payroll/100 = Manual Premium
9072-Fast Food Restaurants 3.46 x 100,000/100 = $3,460
The above example is the basis for determining premium. Additional components in determining premium enable the insurance company to tailor workers’ compensation premium to suit the individual character of each employer.
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