Workers' compensation can be a financial lifesaver for your business. If you own a business in Colorado, or any other state for that matter, workers' compensation is required by law. Workmans' compensation insurance is designed to protect both you and your employees if an accident or injury happens on the job. It ensures that employees are fairly paid for workplace injuries while protecting you from expensive lawsuits.
Unfortunately, workers' compensation insurance is a fairly sophisticated product that is not always easy to understand. But an independent insurance agent is the perfect person to guide you through picking a policy. This quick refresher will give you a basic understanding of workers' compensation insurance as well as Colorado specifics.
Colorado Workers' Compensation Laws & Regulations
Colorado requires all employers who have one or more full-time or part-time employees to purchase a workers' comp insurance policy. These policies pay benefits to employees who are hurt on the job or suffer work-related illnesses or long-term injuries. It covers both medical bills and lost wages while they are out of work. Like all workmans' compensation policies, it is a no-fault system, which means that regardless of who is at fault, injured workers are covered and employers are protected from costly employee lawsuits.
Who Is Covered by Colorado Workers' Compensation Insurance?
Unless you are a sole proprietorship, your business must have a Colorado workmans' compensation policy in place to cover your employees and to be in compliance with state laws.
There are exceptions:
- Casual maintenance or repair work performed for a business for under $2,000 per calendar year.
- Domestic work, maintenance or repair work for a private homeowner that is not done full-time.
- Licensed real estate agents and brokers working on commission.
- Independent contractors who perform specific for-hire transportation jobs.
- Any person who volunteers time or services for a ski area operator.
- Independent contractors.
Workers' compensation insurance covers a variety of situations, including everything from sudden accidents such as slips and falls to injuries that occur over a longer period of time, like carpal tunnel syndrome and other repetitive stress injuries that can result from heavy computer usage. Your employees can also receive benefits for illnesses that come about gradually as a result of their working conditions, such as lung disease and heart-related problems.
While workers' compensation policies are designed to cover work-related injuries and illnesses, that doesn’t mean they necessarily have to happen in the workplace. If an employee is performing a job-related duty when hurt, the injury or illness is covered regardless of where it happened.
Where Can I Buy Colorado Workers' Compensation Insurance?
Colorado is one of 13 states that have a state-funded workers' compensation insurance company that competes with private insurers. Pinnacol Assurance is the state-funded choice in Colorado and currently has about 56,000 customers across Colorado. If they are approved by the state, businesses can also choose to get a policy from a private insurer or be self-funded.
How Much Will I Pay for Workers' Compensation in Colorado?
Workers' compensation rates are set by the state, so individual insurers have no control over pricing. Premium rates reflect job hazards, so employers in hazard-prone industries pay more than employers in industries that are less likely to experience accidents. Employers with good safety records also pay less than those with numerous accidents or claims.
Colorado workers' comp premiums are based on class codes that identify specific categories of workers. The National Council on Compensation Insurance (NCCI) establishes these class codes, which are used to assign base premium rates for employees that are set by the Colorado Department of Workers' Compensation and the Colorado Division of Insurance.
Here is an example; keep in mind that the rates change annually. The base rate for a landscaping worker starts at $5.87 and is applied to every $100 of payroll. This base rate is multiplied by the employer’s payroll for all of their landscapers to determine their workers' compensation premiums.
Colorado Classification Code: 0042 Landscaping
Base Rate: $5.87
Employer Payroll: Example: $100,000
Premium Calculation: $5.87 per $100 or 5.87 percent of payroll.
Estimated Annual Premium: $5,870
It’s important to remember that most employers have employees with more than one classification. A landscaping company probably has sales and clerical staff that falls under a different class code. All of the various class codes and premiums for a specific employer are combined to determine the total workers' compensation premium.
Recently, rates in Colorado were 19% lower than the national average, but you can drive your rates even lower if you qualify for discounts offered by the insurers operating in Colorado. Discounts vary between insurers, but here are a few of the common discounts offered by Pinnacol Assurance, which is the leading provider of workers' comp insurance in Colorado:
- Premium Discount: This discount applies to any business that has a standard annual premium of $10,000 or more. The bigger the premium, the bigger the discount.
- Group Association Discount: Members of industry, professional or trade associations that meet certain three-year loss ratio standards can qualify for discounts that can range up to 4%.
- Cost Containment Discount: These reward policyholders that implement and maintain standardized safety programs. They must receive certification through the State of Colorado Workers’ Compensation Cost Containment Certification (CCC) Program.
When it comes to controlling the costs of your workers' compensation program, a safety program and limiting injuries are key and will do the most to lower your costs.
Safety training and monitoring should be an integral part of your business, to protect not only your employees but your bottom line as well.
Colorado Base Rate Examples
Colorado assigns a high and low base rate to each class code. Here are just a few examples of class code rates for recent years.
- 3632 Machine Shop: $3.15
- 3821 Salvage Yard: $5.03
- 5022 Masonry: $10.70
- 5183 Plumbing: $3.91
- 5190 Electrical: $2.53
- 5221 Concrete Construction: $5.41
Experience Modifiers Can Help
An experience modifier (e-mod) is a multiplier that is applied to the premium of a qualifying workers' comp policy and is used as an incentive for loss prevention. The e-mod can raise or lower your premium by applying a credit or debit, depending on your company’s loss experience record. If your company has filed more claims or experienced higher losses on average than other companies in your industry, a debit e-mod (basically a surcharge) will be applied to your policy, effectively raising your rates.
On the other hand, if you are experiencing fewer losses, you will be given an e-mod credit, which acts as a discount, lowering your premium. In Colorado, all employers whose premium before discounts averages $4,000 or more a year for a three-year period are eligible for an experience modification rating. Currently, 90% of workers’ compensation premium dollars come from experience-rated policies.
When you start your business, your assigned industry modifier is 1.00, which is considered neutral. If you manage to stay injury-free and claim-free, your e-mod number will drop below 1.00 and your premium rates will drop as well. If you have a number of claims and injuries, your e-mod number will rise above 1.00 and you will be charged a higher premium.
The total premium for an employee will be calculated by multiplying your base rate and experience modifier by an employee’s payroll, or Base Rate x Payroll x Mod = Premium. Your experience mod is one factor that is directly under your control and can have a major impact on your premium. Keep your claims and losses low, and remember that frequent small claims will have a bigger impact on your experience mod than one big claim.
Where Can I Get Workers' Comp Insurance?
Workers' compensation coverage is a complicated type of insurance and dealing with an expert in the subject will ensure that you are fully insured and in compliance with all state laws. An experienced independent insurance agent can help you understand Colorado workers' compensation regulations and find the best policy for your needs as well as discounts that can lower the cost of your workers' compensation policy.
Get started today, contact an agent and protect both your employees and your business.