Workers’ compensation. Just the term itself inspires a wide range of emotions from the various people I hear from in business.
Some business owners may view it is as tyranny. They may feel it is an intrusive, expensive government mandate. Other business owners view it as a safety net, protecting them, their employees, and their business from claims arising from an injured worker.
The majority of business owners are in the middle, viewing workers’ compensation as a necessary business expense.
For our purposes, workers’ is a plural possessive noun. This helps me explain the concept, and also exercise my grammar.
Very simply, I think as humans we learn commerce early in life…I give the lunch lady my money, and she sells me a tray of food. Therefore, when we become adults, paying for an intangible item is painful at first. I pay insurance premiums and I don’t get a thing, says the new driver until their first accident.
For our purposes, workers’ is a plural possessive noun. It belongs to many. Workers’ compensation is meant to provide the financial resources for an employee who needs medical treatment due to a work related injury. Further, it provides a financial pool for income replacement due to missed work days for the injured worker. Finally, it may pay for a loss of ability to earn compensation due to a more serious injury.
The system is not perfect.
For the employer, honesty is expected:
- when the worker is classified as an employee and not an independent contractor
- when the wages are estimated for premium calculation payable to the carrier
- when the operations of the business are described for the agent gathering underwriting information
For the employee, honesty is expected:
- when the employee is asked about qualifications, skills and experience
- when the employee is asked about physical limitations
- when the employee reports an injury
Premiums are calculated using the guidelines put forth by the National Council on Compensation Insurance, Inc. Insurance carriers in most states use the Scopes Manual to determine a workers’ classification code. This is a four digit number that is associated with a specific scope of work duties. The classification code allows the claims data that is associated with a particular scope of work to be tracked and analyzed.
As expected, the more frequency and severity of the claims associated with a particular type of work result in higher premiums. A rate per $100 of employee compensation is assigned to each code. The employer’s payroll estimate is then used to extend the amount of premium by classification code for all compensation paid to workers employed by the business. The resulting annual premium estimate is used to develop a declaration page. The employer is essentially declaring their scope of work and estimate of payroll used to determine premium calculations.
Business owners share their workers’ compensation stories with me. Experience is a great teacher, and I enjoy the opportunity I have to work with a large and varied group of businesses.
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