ARI Blog: Article

Top 7 Workers Compensation Questions


If you are starting a new restoration contracting company, there can be many questions around workers' compensation insurance — Is it needed? How does the audit work? How can I minimize premiums? Below, we summarize the top workers' compensation questions and a brief answer to each.

Do I have to carry workers’ compensation insurance if I don’t have employees?

If you have a one-person company, you may be operating in a state that does not require that you maintain workers’ compensation coverage. However, contracts, licensing boards, or other regulations may require that you carry workers’ compensation insurance. Why? In many states, unless a company can show that subcontractors have their own workers’ compensation insurance, subcontractors will be automatically covered under the hiring company’s policy at the hiring company’s expense.

Do I still need workers’ comp insurance if I use contractors instead of employees?

Contract employees, leased employees, and other work-for-hire situations may be exempt from worker's compensation requirements, but some state laws require companies to cover 1099 contractors. When you hire independent contractors to do work for you, you should need that they carry their own workers’ compensation or assume that you will have to pay an additional premium to cover the subcontractor on your policy.

Do I have to pay for workers’ comp coverage for myself?

In some states, owners, officers, partners, and other company principals can exclude themselves from their companies’ workers’ compensation coverage. If you’ve got good health insurance and disability insurance policies, consider your risk low, and want to save on premiums, this may be a good choice for you.

What if I want to cancel my workers’ comp policy?

The insurance company can charge and retain a minimum premium in virtually every state when a workers’ compensation policy is canceled. So, if you buy a workers’ compensation policy and cancel it two months later, you will still owe the minimum premium, which can be much more than the cost of two months of coverage. In some states, the minimum premium can run from several hundred dollars to more than $1,000. So, read the fine print before you decide to cancel your workers’ compensation policy, and be sure it will save you money.

What’s a premium audit?

Your workers’ compensation premium depends on the number of people you employ and what risk classifications those employees fall into, based on each person’s scope of employment. Your carrier will conduct an annual premium audit to determine these numbers and set your company’s workers' compensation insurance premium for the policy period accordingly. It is important to note that during the audit period, the carrier may adjust the premiums and findings from the current period and make that adjustment retroactive to cover the employees and risk classifications incurred during your previous policy period.

What can I do to minimize my premium?

Audit mistakes can cause you to lose coverage or unnecessarily inflate your company’s workers’ compensation insurance premium, so it’s essential to prepare. Designate a knowledgeable contact person for the auditor who is familiar with your employees’ work. Be sure to provide accurate and detailed information because the auditor may assume the worst-case scenario for risk exposure and increase your premium without it. Review your payroll documents to ensure that they will allow the auditor to readily break out overtime pay and discount it back to straight time, as is allowed in most (but not all) states’ workers’ compensation rules. Your payroll records should also reflect each employee's actual hours in the different workplace exposure categories. Otherwise, all of the employee’s payroll will go into the most expensive classification applicable. If your company uses 1099 subcontractors, show the certificates of insurance documenting that they have their own workers’ compensation insurance.

What if I have employees in multiple states?

It is essential to break down your payroll by state. Suppose you do not provide the insurance company with accurate information about payroll in each form where work is done. In that case, the insurance company will likely not pay claims that occur in unreported states, even if the total payroll on your report is accurate. Be sure the person handling the audit in your office is aware of and has access to precise information on out-of-state payroll and that the audit is fully completed.

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