Workers’ Compensation

Posted on September 28, 2011

Workers’ compensation programs in the United States provide for the needs of employees who incur work-related injuries or illnesses. Benefits can include compensation for wages lost while recuperating from an injury, medical and rehabilitation costs, disability benefits, as well as survivor and death benefits. In return for coverage under a workers’ compensation program, covered employees relinquish their rights to sue their employer in the case of work-related illness or injury.

History of Workers’ Compensation Laws in the United States
Before the Supreme Court upheld the constitutionality of compulsory workers’ compensation programs by the states in 1917, workers had little recourse if they were injured while on the job. An employee who became hurt had to turn to the courts for restitution. Most workers did not have the financial resources to sue the employer; those who could, faced a difficult time, as the onus was on the employee to prove negligence on the employer’s part. As a result, very few employees received any compensation. Additionally, employees and employers alike faced an unpredictable system where the settlement might be less than the employee’s legal costs or an exorbitant amount that might be more than the employer could afford to pay.

Initially, the concept of workers’ compensation was not widely embraced. In addition to resistance from employers, unions opposed workers’ compensation laws, as they feared that the necessity of unions would decline if the states controlled worker benefits. Between 1902 and 1910, four states introduced compulsory workers’ compensation statutes; all four were challenged in the courts and were deemed unconstitutional as violating due process. In 1911, Wisconsin passed the first workers’ compensation law that survived legal challenges; in the next ten years, all but eight states passed legislation that made workers’ compensation insurance compulsory. Passing its statute in 1948, Mississippi was the last state to implement workers’ compensation legislation.

How Does Workers’ Compensation Affect Employers?
Workers’ compensation laws are different in every state. Although all states require most businesses to carry workers’ compensation insurance, some workers, such as farm and domestic workers, are exempted in many states. It is also important to know whether you need to carry workers’ compensation insurance based on the number of workers your business employs. In most states, if you employ any employees, they all must be covered. However, there are a handful of states that impose a higher threshold:

Four states, Ohio, North Dakota, Washington, and Wyoming, are considered monopolistic for the purposes of workers’ compensation. In those states, you can only purchase coverage from the state agency that administers workers’ compensation. To find out more about coverage in these states, please visit the state website.  A list of state websites for workers’ compensation is available at the end of this article.

Who is Covered?
In most states, only employees need to be covered by workers’ compensation insurance. However, the workplace determines whether a person is an employee or an independent contractor for workers’ compensation purposes. Even persons who are issued a 1099 rather than a W-2 and those who sign independent contractor agreements may be subject to workers’ compensation laws. Employers that incorrectly designate an employee as an independent contractor may find themselves unexpectedly billed by an insurer for premiums, facing compliance actions by the state, or possibly being sued by an injured worker.

When determining employee versus contractor status, several elements need to be considered. For example, in general, an employee is a worker with whom the employer maintains a continuous relationship, who the employer has the right to terminate from employment and for whom the employer provides a workplace and tools with which to perform his or her job. Conversely, a contractor maintains an independent business that is available to provide services to the public. Contractors chose whom they work for and how the work is to be performed. Because rules vary by state regarding employee and independent contractor designations, be sure to check with your state to ensure compliance. A list of state websites for workers’ compensation is available at the end of this article.

Under certain situations, owners of small businesses have the ability to elect to be exempted or included in the application of workers’ compensation laws. Exempt persons are not covered by workers’ compensation policies and do not pay premiums. Specific state statutes govern who those persons are and what filing requirements are necessary to authenticate an inclusion or exemption. For example, most states automatically exempt sole proprietors and partners in nonconstruction businesses; however, in some states (AR, IL, LA, MS, NM, TX & WV) they are automatically included. Furthermore, in the state of Connecticut, partners, rather than sole proprietors, are automatically included. All states allow a change to the automatic inclusion or exclusion, but it must be made in writing. The specific method prescribed for the written request varies by state; therefore, it is best to check with your state agency to ensure that your request is in an acceptable form.

Although in most states corporate officers generally must request to be exempt, in ID, NE and OK, they need to file a request to be included. States have specific ownership percentages and rules governing which officers or how many officers can file for inclusion or exclusion; rules regarding members of limited liability companies (LLCs) can be even more specific. It also is important to note that businesses engaging in some type of construction generally are subject to a separate set of rules in most states.

Duties
In most states, employers have responsibilities associated with workers’ compensation in addition to providing coverage. Most often, they have to do some or all of the following:

• post notice of workers’ compensation regulations in a specified location available to all employees
  
• report accidents to their insurer in a timely manner
  
• assist an injured worker to obtain medical care if they are unable to do so themselves
  
• keep logs of accidents and respond to their insurance company
  
• respond to state requests for information related to workers’ compensation claims

It is important to know your responsibilities as an employer in your state. Check with your state agency or workers’ compensation insurance provider to ensure that your business complies with your state’s regulations. The table below provides links to the workers’ compensation Web pages for each state:

The material contained in this document is for informational purposes only and is current as of the date of publication. CompuPay is not a legal advisor or financial advisor and makes no claims as such. For financial or legal advice, please seek the advice of a professional.

Listed in Employer Resources.