Workers’ compensation insurance is essential to any business with one or more employees. It not only protects employees in cases of injury or illness but protects employers from possibly time-consuming legal processes and out-of-pocket expenses. But how is workers’ compensation regulated, and who should you look to for help?
Workers’ Compensation Basics
State legislatures, not the federal government, determine the rules and regulations regarding workers’ compensation insurance. In turn, each state has its own particular laws with various caveats and distinctions. However, many states have a very similar legal framework when it comes to workers’ comp.
Generally speaking, a state government-led entity oversees workers’ compensation and enforces the rules. To learn more about insurance practices in your jurisdiction, you’ll have to confer with your state’s workers’ comp regulatory entity.
Monopolistic vs. Competitive State Funds
State funded workers comp insurance providers use government funding to supply coverage. Each state has either a monopolistic state fund or a competitive state fund, and this distinction will determine what options you have when purchasing a workers’ comp policy.
In monopolistic states, employers must purchase a workers’ compensation policy from the state fund. Monopolistic states include:
- Ohio
- Wyoming
- North Dakota
- Washington
Conversely, employers operating in competitive states have the option to purchase insurance from either the state fund or a private insurer. Most states have a competitive state fund, opening the door to insurance companies.
Why does this difference matter to employers? Limitations for monopolistic state workers’ compensation include being unable to comparison shop for the best quote, provide coverage for out of state employees, and acquire employer liability coverage. In competitive states, businesses choose the workers’ compensation insurance to fit their needs and financial requirements.
State-by-State Variations
As previously mentioned, each state determines its workers’ comp insurance requirements and restrictions, creating variations across the country.
For example, some states exempt small companies with very few employees from workers’ comp coverage requirements. For instance, Alabama exempts employers with four or fewer employees. In comparison, states such as Louisiana, Maine, and several others require workers’ compensation coverage for any business with one or more employees.
Other variations include industry-based exemptions. These can include self-employed workers, farmworkers, and those in the construction industry who are not required to have coverage by their employers.
Self-Insured Companies
Self-insured workers’ compensation places the financial risk of providing workers’ compensation benefits into the employer’s hands. These employers pay for employee injury-related expenses out of pocket instead of paying a fixed premium to an insurance carrier or state fund. Not all states allow companies to self-insure, and those that do typically have strict guidelines for approval.
Texas Workers’ Comp Laws
Texas, of course, has its own rules. It’s the only state where workers’ compensation insurance isn’t required. Employers are allowed to choose whether or not to purchase workers’ compensation insurance. However, they must inform their employees if they aren’t covered.
In the state of Texas, business owners deciding against workers’ compensation insurance are called nonsubscribers. If an employee suffers a work-related injury or illness, they have the right to sue their employer. In court, these businesses are not allowed to use the argument of employee negligence for their defense.
There are no penalties for private businesses in Texas not having workers’ compensation insurance unless they fall into specific categories. These include public employers, state universities, building and construction companies, motor carriers, and liquid propane gas and natural gas dealers.
However, many companies operating in Texas choose to purchase workers’ comp insurance because it standardizes payments and limits the employer’s liability should an injury occur.
Know Your Rights and Responsibilities
As an employer, it’s up to you to know your state’s legal insurance requirements. If you don’t carry compulsory workers’ comp insurance, you may face severe penalties, including expensive fines, lawsuits, and even criminal charges. Legal requirements aside, many employers feel a sense of responsibility for their employees’ wellbeing. By buying the right workers’ comp insurance policy for your company, you can give your employees peace of mind and proper care should they ever need it.
