Why South Dakota's Workers' Compensation Insurance Differs from Other States
Uber, the ride service derived from a smart phone application, announced in September 2016 that it is coming to South Dakota soon. This widely popular service had thus far steered clear of SD and the handful of other states with more lax workers' compensation laws. Uber has been to court with local and state governments because the company considers its drivers independent contractors and maintains that they are therefore not covered by workers' comp laws in most states. It seems the company has worked out those issues and will be offering its services to South Dakota residents.
The issue Uber has had with South Dakota and other states points out how important it is for all employers to understand workers' compensation regulations.
Workers' compensation in South Dakota provides benefits if an employee becomes injured or ill from their job. It also covers injuries or illnesses caused or made worse by work or the workplace. Workers' compensation insurance coverage provided by your employer is intended to:
- Pay medical and disability benefits for work-related injuries and diseases.
- Help employees return to work as soon as possible.
How Does South Dakota Regulate Workers' Compensation?
Many employers in South Dakota purchase workers' compensation insurance policies from commercial insurance companies. Some employers are self-insured and pay all the benefits themselves, if approved by the state.
The insurance company or self-insured employer pays medical costs to the health care providers who treat injured workers. State law does not require that employers have workers' compensation insurance, but if they do not, the employer can be hit with a civil suit. That is why workers' compensation is important, not only for employees, but also for employers.
State law sets benefit amounts. The Division of Labor & Management checks the benefits paid by the insurance company or self-insured employer to make sure the injured worker is receiving all the benefits to which that worker is entitled.
Benefits are not allowed when injury is due to willful misconduct, intoxication, illegal drug use or failure to use a furnished safety appliance. Also, a false representation as to health at the time of obtaining employment may result in a denial of benefits.
Who Needs Workers' Compensation Insurance in South Dakota?
The South Dakota Workers' Compensation Law covers all employers with only limited exceptions, including:
- Domestic servants (unless working for an employer more than 20 hours in any calendar week and for more than six weeks in any 13-week period)
- Farm or agricultural labor
- Persons whose employment is not in the usual course of trade, business, occupation or profession of the employer (independent contractors, including real estate agents and owner-operators of trucks certified as independent contractors by the Department of Labor and Regulation)
- Certain elected officials of the state or any subdivision of government
- Workfare participants
While workers' compensation coverage is optional in South Dakota, it is still a good idea to obtain coverage to protect both employees and employers. If an employer does decide to carry workers' comp, by law they cannot:
- Take the cost of workers' compensation insurance from employee wages.
- Prevent employees from filing for workers' compensation benefits.
- Threaten or take action against employees for filing for benefits.
What Does It Cost to Carry Workers' Comp in South Dakota?
Rates for workers' compensation in South Dakota are very close to the national average and they have remained stable for the past five years.
This is good news for employers purchasing workers' compensation coverage.
The rate an employer pays for a workers' compensation insurance policy in South Dakota depends on three factors:
- Size of payroll
- Employee classification
- Experience modifier
Most employers are familiar with their employees' classification code or codes, since they are used for several purposes, including tax filing. This matters in terms of workers' compensation rates because a call center worker in Rapid City has entirely different risks of injury or illness than a woodshop employee in Sioux Falls.
The experience modifier is just insurance jargon for an employer's workplace injury history. Much like a speeding ticket can increase car insurance rates, having multiple on-the-job injuries can increase workers' compensation insurance rates. The employee classification plus the experience modifier is the base rate an employer will pay, the only other factor being the company's payroll.
To find out how much your company would pay for workers' compensation, simply calculate:
Base Rate X Payroll X Modifier = Premium
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 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 impacts South Dakota's 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, as of 2015 the rates for a retail store with zero claims in its recent past will pay a rate of $1.11 per $100 in payroll for its workers' compensation insurance. In contrast, an HVAC company with several workplace injuries in its past will pay a rate of $9.47 per $100 in payroll.
Base rates can fluctuate slightly from year to year, depending if the rating agency makes any changes. Here are more examples of 2016 base rates for South Dakota workers' comp:
- 0042 Landscaping: Low experience mod of $3.86 vs. high experience mod of $8.85
- 3632 Machine Shop: Low experience mod of $2.02 vs. high experience mod of $4.63
- 3724 Machinery or Equipment Erection or Repair: Low experience mod of $4.36 vs. high of $10.00
- 8006 Gas Station: Low experience mod of $1.49 vs. high experience mod of $3.42
- 8017 Retail Store: Low experience mod of $1.11 vs. high experience mod of $2.55
Find Discounts on South Dakota Workers' Compensation Rates
Although South Dakota is one of the few states that does not require employers to carry workers' comp, it does offer incentives for companies to save money on these policies should they buy one.
Each of the following plans rewards employers for maintaining a safe work site and making few or no claims for work-related injuries.
- Merit Rating Plan: This plan is designed for small employers who are not currently experience-rated or pay a premium less than $3,750 per year. It provides employers with insurance premium discounts up to 10% based on their claims experience for the past three years. This plan is applicable to both voluntary and assigned risk policies.
- Experience Rated Plan: This plan is designed for larger employers who pay more than $3,750 per year in premiums. This plan is specific to your individual experience. Premiums may be credited or debited based on past claims and the cost of those claims. It is also applicable to both voluntary and assigned risk policies.
- Scheduled Rating Plan: This plan is designed for experience-rated employers insured in the voluntary insurance market. It provides for premium discounts of up to 24% based on your willingness to participate in a safety plan prescribed by your insurance company. Insurers are not required to offer this plan. More than 200 insurance companies provide coverage in the voluntary insurance market in South Dakota, so it's always a good idea to shop around to find a company with the best discounts.
Where Can You Buy Workers' Compensation Insurance in South Dakota?
Knowledgeable, independent agents with Trusted Choice® are always available to answer any questions you may have about South Dakota's workers' compensation program. These experienced agents can assist you in finding a variety of quotes from a number of insurance companies, enabling you to choose a workers' comp policy with the most competitive rates. Contact a Trusted Choice agent to find out how a workers' compensation product can protect both you and your employees.
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