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Insurance Newsletter by Hayes

Insurance Newsletter by Hayes

Hayes Insurance Agency focuses on Risk Management: Workers Comp (WC)

All businesses have risks that need to be understood and managed.  For this newsletter we are focusing on employees and the risk of injury on the job.  Every state requires that you have workers compensation insurance to protect your employees for expenses related to work injuries.  It protects you by providing both medical coverage and wage support in the event of a work related incident.   There are many misunderstood aspects of Workers Comp that we would like to clear up for you, hopefully giving you a better handle on this area of risk.   Insurance coverage is much like filing your income taxes.  For taxes you can claim anything as a deduction – If you have an audit, the IRS points out the deduction rules and that deduction may be disallowed.

With insurance, you may think that you are covered in your policy, sometimes for years, until you have a claim.   Then the claims adjuster may point out where in your policy that this particular loss is excluded, not covered.  Like your tax audit…this is not a pleasant surprise.  In our 28 years in business we have had many questions, such as those below, so we are sharing the most common ones in Q&A fashion.  Our information below is for general reference and is not a legal opinion.

What if the employee was at fault for causing his own injury? Does Workers Comp pay the claim? Yes, as long as no fraud was involved, they pay. WC is no-fault insurance.
Do my volunteers need to be covered by Workers Comp? Most likely. You should seek clarification from a labor attorney. Unfortunately you may not have an exact answer until they get injured on the job and it is determined that they were legally classified as employees. They do not need to be paid wages on W2 to be considered an employee. If they receive any like kind compensation (non-monetary) for their volunteer work, they will very likely be considered employees. This would be considered “payment in kind” employment and workers comp would be required. Workers Comp Insurance for volunteers is handled by estimated hours at wage as an imputed income (not actually paid on payroll).
If I have people working for me as contractors and I pay them on 1099’s do I have to include them on WC? Maybe. If in doubt, seek assistance from a labor attorney. Again, you may not know until you have a claim, so it would important to do some due diligence with your 1099 contractors. The IRS is involved in the definition of employees for the purpose of employee taxes such as social security withholding. Just because you do not consider them as employees does not mean it is true. You may not win either an IRS audit for taxes or a Workers Comp claim if they are injured on the job. Briefly, at this web site is a very helpful checklist of factors which would help you identify employee vs. legitimate sub-contractor: http://www.irs.gov/pub/irs-pdf/fss8.pdf As you answer the questions for each employee, consider a preponderance of evidence that would help identify correct classification. Yes, you can include 1099 staff as employees on Worker Comp.
What coverage does Workers Comp provide? It provides up to $1 Million of coverage for work related accident/injury/illness/death and has a schedule of payments for both treatment of the injury and loss of wages for the employee. A secondary coverage (Employer Liability) protects the employer for civil liability for the claim up to $1 Million.
If I have Workers Comp Claims, does that affect my premiums? Yes, for a period of up to 5 years.
Are business owners required to be covered under Workers Comp? Yes and No…., owners and officers of an organization can be exempted, but they must be clearly identified with the workers comp carrier and clearly sign off on the exemption.
Non-Profit and Not-for Profit Corp officers are required to be part of Workers Comp if they are on payroll- this is important and this is effective on day one of the organization, even if there are no other employees /W2’s.Corporations, LLC’s and Partnerships- as long as all officers own 100% of the organization (via stock or other ownership) they can elect to be exempted. If any ownership is outside this officer group, all officers must be covered under WC.

Important to note: if officers are exempted, they are not covered by WC for injury/accident/sickness/death on the job and …very important, they should check that their personal health insurance plan will cover them for claims that happen while at work. Not all health plans provide that coverage. Owners should also purchase disability and life insurance to complete their own coverage portfolio.

What are the consequences if I do not get Workers Comp for my employees? If it is discovered that you do not have Workers Comp, the legal issues concerning this are serious. Typically this discovery occurs when an injured employee is not provided any medical assistance and seeks legal advice.

First, you will be responsible for the medical coverage/disability/ or death benefit for any employee with an on-the-job claim, up to the state maximum of $1,000,000. In addition, you will be liable for fines of up to $100,000 and/or possible 1 year of prison sentence. Your business will be shut down until you comply.

Do family members need to be covered under Workers Comp? If they are owners or on the Board of Directors, Workers Comp rules apply as if they an owner or officer as in discussion 6 above. For example, in a non-profit, if an owner is required to have Workers Comp, then their family members must have Workers Comp.

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