Few workplace injuries have received as much media attention as the incident that canceled Fourth of July fireworks displays in Bridgeview, Illinois. Two employees were hospitalized with severe burns suffered during set-up, when some fireworks detonated prematurely while a baseball-sized firework was being put into a chute. Luckily for both the employees and the employer, Five Alarm Fireworks, the injuries were covered under workers' compensation insurance benefits. Although most workers are not exposed to such dangerous risks, it is still important for all Illinois business owners to carry workers' compensation insurance and understand the law regulating this vital protection.
How Illinois Handles Workers' Compensation
Workers' compensation in Illinois is a no-fault system, meaning covered employees cannot sue their employers. The benefits are paid by Illinois employers to workers who experience work-related injuries or diseases. Illinois law requires employers to provide workmans' compensation insurance for almost everyone who is hired, injured, or whose employment is localized in Illinois, with a few exemptions, including sole proprietors and members of limited liability companies. The Illinois Workers' Compensation Commission estimates that 91% of Illinois employees are covered under the law and are required to purchase workers' compensation insurance.
An employer that knowingly and willfully fails to obtain insurance may be fined up to $500 for every day of noncompliance, with a minimum fine of $10,000. Corporate officers can be held personally liable if the company fails to pay the penalty. Since 2006, the Commission has collected over $7 million in fines. This provides workers with proper legal protection and other employers with a fairer competitive arena. The Injured Workers’ Benefit Fund was created in 2005. When the Commission collects penalties and fines from uninsured Illinois employers, it deposits these funds in the IWBF, which then pays workers' compensation benefits to injured employees whose uninsured employers failed to pay.
The Cost of Workers' Compensation Insurance in Illinois
A recent article in "Insurance Journal" indicated that with a median rate index of $2.35 per $100 of payroll, Illinois has the seventh-highest average workers’ comp premium rate of all U.S. states, according to the recent Oregon Workers’ Compensation Premium Ranking Study. The national average index rate is $1.85 per $100 of payroll. The cost of a workers' compensation insurance policy in Illinois depends on several factors. A restaurant in Chicago will pay a different rate than a construction company in Springfield. Workmans' compensation rates are affected by the following elements:
- Size of the employer's payroll
- Employee job classifications, or base rates
- The employer’s experience modifier; in other words, the company's workers' compensation claims history
Employees are classified according to their risk assessment. Workers who handle heavy or dangerous equipment will be more costly to insure than workers in an office environment. Similarly, your Illinois workmans' compensation insurance premiums will be lower if you have a claims-free history than if your business has had several benefits claims.
Experience modifiers are calculated by the NCCI or by another independent agency in some states. Your mod represents a debit or credit that is applied to your workers’ compensation premium. A high experience modifier means the employer has had workers' compensation claims in their recent history. A low experience modifier means they have a claims-free past. Your workers' compensation premiums are determined with the following formula:
Base Rate X Payroll X Modifier = Premium
A mod of 1.0 is considered to be average and does not impact your premium. All employers start out with a mod of 1.0. A mod greater than 1.0 is a debit mod. This means that your losses were worse than expected, and your premium goes up. A mod less than 1.0 is a credit mod. This means your losses were better than expected, and your premium goes down.
Here are some examples of how experience rating affects Illinois workers’ compensation premiums:
- Premium: $100,000
- Mod: 0.75 (25% premium credit)
- Premium with mod credit applied: $75,000
- Premium: $100,000
- Mod: 1.0
- Premium is not adjusted
- Premium: $100,000
- Mod: 1.25 (25% premium surcharge/debit)
- Premium with mod debit applied: $125,000
For example, a claims-free business that employs only clerical workers will pay workers' compensation premiums at a rate of $0.12 per $100 of payroll. A concrete construction outfit with a history of several workers' compensation claims in its past will pay a premium at the rate of $17.04 per $100 in payroll; if the construction company's payroll is $300,000, the workers' compensation premium will be $51,120. Base rates can fluctuate from year to year if the rating agency makes any changes. Here are some more examples of Illinois workers' comp base rates depending on experience mods like:
- 0042 Landscaping
Low mod: $8.77 High mod: $21.21
- 3632 Machine Shop
Low mod: $3.78 High mod: $9.14
- 3821 Salvage Yard
Low mod: $6.03 High mod: $14.60
- 8006 Gas Station
Low mod: $2.12 High mod: $5.13
- 8017 Retail Store
Low mod: $1.83 High mod: $4.44
- 8380 Auto Shop
Low mod: $3.23 High mod: $7.81
Criticism of Illinois Laws Regarding Workers' Comp
Other news headlines this year in Illinois described the loss of another company to Indiana. Enjoy Life Foods, a manufacturer of gluten-free and allergy-friendly foods, moved its production and distribution operations out of Chicago, then opened North America’s largest bakery of gluten-free and allergy-friendly goods in Jefferson, Indiana. Todd Maisch, president and CEO of the Illinois Chamber of Commerce, was reported saying that Illinois lawmakers need to modify the state’s business regulations, particularly a reworking of the workers’ compensation system, which is much more expensive for Illinois employers than the systems in other Midwest states—including Indiana. He claims employers are telling him the workers' compensation insurance costs in Illinois are five to six times more than neighboring states.
An indication of the problems associated with the state’s system was revealed when the Illinois Workers’ Compensation Commission’s annual report was issued. The study shows that injured workers in Illinois spend an average of 50% more time off work than their counterparts in Indiana, Wisconsin, Michigan or Iowa. It also illustrates that total temporary disability claims in Illinois are for longer periods of time than those in most states covered in the study.
According to the study, the average time off work for a temporary injury is:
- 18.4 weeks in Illinois
- 15.7 weeks in Michigan
- 11.6 weeks in Iowa
- 10.9 weeks in Wisconsin
- 10.5 weeks in Indiana
The commission also found that some workers in Illinois receive more take-home pay when they are receiving workers' compensation benefits than when they are working because the benefits are not taxed.
Where Do Illinois Employers Purchase Workers' Compensation?
In Illinois, workers' compensation insurance is sold in the private sector. Employers may contact a licensed insurance agent, perhaps one who specializes in business owners' insurance. If an employer cannot find an insurer to write them a policy, they must sign up with, or have their insurance agent enroll them in, the market of last resort. This residual market, in which premiums cost about 50% more than the open market, is administered by the National Council on Compensation Insurance. Therefore, it is recommended that employers purchase their workers' compensation in the private market.
Knowledgeable, independent insurance agents are up-to-date on the legislative movement toward workers' compensation reform in Illinois. These agents are able to assist any business in finding a workers' compensation insurance policy that fits their company goals while complying with state law. These agents work for your business, not the insurance company, and thus they are able to gather a number of policy quotes from a variety of providers, ensuring that policy you buy offers the best coverage at the most competitive rates.