Workers’ compensation is designed to protect both your business and employees in the case of workplace injury. When an employee has a work-related injury, workers’ compensation helps cover medical, disability, and rehabilitation costs. This way, as an employer, you won’t have to pay directly out of pocket and you’ll have protection against further liability for a covered injury. But what else happens on the employer’s side? How does a workers’ comp claim affect the employer?
Here are 10 ways workers’ comp claims affect the employer, along with 10 ways to help you protect your business and reduce workers’ compensation costs to employers.
Employers who do not have workers’ compensation insurance for their employees can face exorbitant costs if an employee is injured. What’s more, in most states, it is against the law to have a small business that is uninsured by workers’ comp.
On the other hand, employers who do carry workers’ compensation coverage for their employees are protected from liability and from having to pay out of pocket for employee injuries. However, employers with coverage still face direct and indirect costs associated with workplace injuries.
The primary direct cost to employers is the expense of workers’ compensation insurance premiums. In return for premium payments, employers get insurance coverage. A higher number or greater severity of workplace injuries typically leads to higher premiums.
To figure out how to calculate your workers’ comp cost per employee, you’ll need to connect with an insurance provider to determine your annual premium.
Once you’ve decided on a policy, your workers’ comp insurer will perform an audit to ensure you are paying the correct amount based on the number of employees you have and their job responsibilities.
Workers’ compensation insurance premiums are based on the risk of your business experiencing claims costs, combined with the value of what is being insured. Risk is considered the potential cost of future workplace injuries and is based on the costs of past claims from employees.
To estimate your cost per employee for workers’ comp, you can use this formula:
The exact formulas that insurers use to determine the workers’ compensation premium will differ slightly from insurer to insurer. Additionally, these formulas depend on the workers’ compensation laws laid out in each state.
You can read our article to learn more about calculating workers’ comp costs per employee.
The indirect costs to employers are the expenses that are not covered by workers’ compensation insurance. Indirect costs of workers’ comp claims are outlined in a Stanford University report and available online by the OSHA Small Business Safety Pays Program. The indirect costs are outlined below and give more insight into how much a workers’ compensation claim may cost a company.
The good news is, as a business owner, you can take the following steps to lower your premiums and mitigate the impact of workers’ compensation claims and workplace injuries. Below are ten ways to better manage the direct and indirect costs of workers comp claims against an employer:
At the end of the day, one of the top priorities a business must have is to properly ensure its employees are safe from injury on the job—and covered if they do become injured. The impact of direct and indirect costs to a business will differ depending on its size. Workers’ compensation claims might have less of an effect on large organizations, but, unfortunately, that’s often not the case for small and medium-sized businesses. The impact of a claim can make more of a dent into their premiums and overall costs. Small business owners should consider finding coverage from a workers’ comp provider that specifically works with and understands these challenges.
If you have more questions about the costs associated with workers’ compensation and how a workers comp claim affects the employer, read our article that gives an overview of the most commonly asked questions.
Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation insurance or check your current rate in 3 minutes.