What You Don't Know About Workers' Compensation Can Hurt You!
One commonly overlooked business expense for new companies just starting out, or hiring that first employee, is Workers’ Compensation coverage. When the upstart finally gets around to looking for coverage they not only find it complex to understand, but extremely costly, especially in terms of up-front costs. This article helps to explain what Workers Compensation is, why it is needed, the various ways policies are written and calculated, and emerging trends in the industry, as well as an option that QuickBooks Payroll Subscription or Service users may have available to them.
Some form of workers’ compensation coverage is legally required in every state. In most states this coverage takes the form of ‘insurance’; however, some states permit employers to assume their ‘own risk’, ‘self-insure’ or ‘opt-out’ of traditional coverage and provide an approved alternative.
Workers’ compensation provides coverage for an employee who suffers an injury or illness from job-related duties. Coverage includes medical and rehabilitative costs along with lost wages and in many cases partial or permanent disability compensation or death benefits (either in regular payments or a lump sum).
Without adequate workers’ compensation coverage employers can be exposed to personal liability for any job-related injury or illness an employee might suffer. In addition, most states can impose strict fines and penalties (civil and criminal) for not having workers’ compensation insurance.
Most standard workers’ compensation insurance plans are based upon an employer’s past losses, payroll totals by worker’s job classification, and the type of business being conducted in an attempt to “forecast” what the employer’s premium should be. With traditional coverage, if the carrier “forecasts” correctly what your losses will be, and these losses are less than premiums paid, the insurance company comes out ahead; but if the employer’s losses exceed premium amounts, the insurance carrier has lost money.
Some carriers only write Retrospectively Rated Workers Compensation coverage. Under a “retro plan” as they are called, the insurance carrier, after the policy period ends, values the employers’ claims and calculates the premiums due. The carrier does not forecast what your losses are going to be and charge you a premium on that forecast; rather, they look back to the previous year’s actual experience and based upon those losses (as well as reserves set aside for losses incurred but not yet paid), they calculate and assess your premium.
Pay-as-you-go Workers’ Compensation is a fairly new offering within the insurance market, and not all Workers’ Compensation insurance carriers offer it, and it may not be available in all states. Rating models may vary from carrier to carrier; however, these plans share lower up-front costs since premiums are submitted based upon every payroll (options may vary for some employers). Since workers compensation premiums typically have some relationship to gross wages by employee type (based on standard job classifications), it is possible to calculate and pay premiums as each payroll, throughout the year, is being processed. This method spreads your premiums over the course of the entire year, rather than front-loading them over just the first few months.
For Intuit QuickBooks ‘payroll subscription or service’ users, workers’ compensation cost tracking and pay-as-you-go Workers Compensation coverage are an option. Through an exclusive agreement with The Hartford, QuickBooks transmits your on-going payroll data automatically after every payroll to Hartford’s XactPay Web service, The Hartford then calculates your premiums based upon that payroll, and then sends you an email notification prior to actually withdrawing funds from your designated bank account to cover the payroll-related premiums. At the end of each month The Hartford also posts a monthly reconciliation statement to your online account.
Because your premiums are based on your actual payroll data throughout the year, you minimize the risk of an unexpected year-end premium coming due. You can learn more about this option from Intuit Insurance Services (http://payroll.intuit.com/workerscomp/request_a_quote.jsp), or your local Hartford Insurance agent.