Work Comp FAQ

Workers' Compensation FAQ

(All the things you never knew about workers' compensation)

Workers Compensation FAQs

Table of Contents 

What Employers Need to Know about Workers' Compensation

How does employment tax differ from a W-2 and 1099 employee, and what is an employer responsible for?
Does an employer need to include or exclude themselves from their workers' compensation policy?
What qualifies as a 1099 employee?
What qualifies as a W-2 employee?
Does an employer need to pay workers' compensation for a 1099 employee?
Does an employer need to collect proof of workers' compensation from a 1099 employee?
What happens if an employer is dropped from their insurance company?
How to be prepared for a workers' compensation audit
What is a sub-contractor agreement and why does an employer need to have one?
What is a hold harmless agreement and when does an employer need to have one?
What is a MOD and how does an employer get one?
How does an employer know what class code they need to list on their workers' compensation policy and what are the variations in
prices for class codes?

How does an employer have safety procedures, meetings including but not limited to OSHA to obtain better workers' compensation rates?
What does an employer need to collect on a certificate of insurance from a 1099 employee?
When and who can file a claim on an employer’s workers' compensation policy?
What are the consequences of misclassifying an employee as an independent contractor?

What Employees Need to Know about Workers' Compensation

Does an injured employee have to pay for medical treatment?
Should you stay in contact with your employer during a temporary disability from a workers' compensation claim?
How long does medical treatment last?
What options does an employee have if they disagree with the treating physician’s findings or medical treatment?
What if an employee is not receiving the benefits they deserve?
Will an employee have to use their sick or vacation time while off work due to a compensable injury?
Is an employee paid for the time that they spent attending physician’s appointments?
Which employers are required to provide workers' compensation for their employees?

States and Workers' Compensation Insurance

Which states require workers' compensation?
What are the laws in each state about workers' compensation?
Why does an employer need workers' compensation even if it is not state-mandated?

Welcome to the FAQ page on workers' compensation insurance. This page will answer all those beckoning questions that you've been dying to know about workers' compensation insurance. 

Whether you're an employer, employee, subcontractor, butcher, baker, or candlestick maker, this article will get you where you need to go.

For the rest, an independent insurance agent will have all the facts. They are licensed and knowledgeable in all things workers' compensation insurance and can help decipher the code. 

What Is Workers' Compensation Insurance?

Workers' compensation insurance is a policy taken out by the employer or subcontractor to pay for medical expenses for employees or themselves if they get injured while working. 

Some states require that business owners with employees carry a workers' compensation policy and others do not. If you have even one employee or are subcontractor doing work for someone else, this policy could save you a lot of headaches and cash. 

Instead of having to pay out of pocket for your employees or your medical expenses, a workers' compensation policy will foot the bill.

What Employers Need to Know about Workers' Compensation

How does employment tax differ from a W-2 and 1099 employee, and what is an employer responsible for?

  • When hiring a W-2 employee, there are taxes employers are required to pay to cover their employees — a portion of state unemployment, federal unemployment, Medicare, and Social Security taxes. The employee is responsible for a portion as well. If you hire a 1099 subcontractor, you are not responsible for any taxes as they are considered self-employed.

Does an employer need to include or exclude themselves from their workers' compensation policy?

  • This is up to the employer. However, the majority of employers, CEOs, officers, and members exclude themselves from their own workers' compensation policy to avoid paying an additional premium.

What qualifies as a 1099 employee?

  • A true 1099 employee is self-employed. They make their own hours, are not required by the employer to be anywhere at any time as a result of doing work for them. After the task at hand is complete, so is their contract. If you are using them on a continuous basis, this is not a 1099 employee and should be reclassified as a W-2 employee. If you are still uncertain about how to classify a particular worker, you can file a SS-8 form with the IRS and let them decide for you. The "20 Factor Test" they grade you on is as follows: 
20 point checklist:
Actual instruction or direction of a worker: If you are telling a worker when, where, and how to work, then the IRS would most likely class them as an employee and not a 1099 subcontractor.
Training: If you are having to train the worker in any form or fashion that would be classed as an employee by the IRS.
Integration of services: Integration of said services shows that the worker is an employee and should be classed as one.
Personal nature of services: If the services are rendered personally, then this indicates lack of control and may be indicated when worker can hire a substitute with permission from the employer.
Similar workers: If you have similar workers doing similar job duties then this is an indication of employer control over the job and should be classified as a W-2 employee.
Continuing relationship: If the relationship between the employer and the worker is consistent and ongoing, then this shows a need for a W-2 employee and should be classed as such.
Hours of work: If there are set hours that are required to complete the task at hand, then this is a job for a W-2 employee not a 1099 worker.
Full-time work: Full-time work indicates control by the employer because it does not allow the worker to obtain other employment.
Work on premises: If the worker must do their work on your premises, then employer control is implied and should be classed as a W-2 employee.
Order of performance: If the order in which the worker performs their task is set by the employer, then you guessed it, this should be classified as a W-2 employee.
Submitting reports: If the worker has to account for their actions by submitting written or oral reports then this indicates employer control and should be classed as a W-2 employee. 
Method of payment: Payment method by the hour, weekly or monthly implies employee-employer relationship and should be classified as such. If the worker gets paid from commissions or contracts, then they can qualify as a 1099 worker. 
Payment of expenses: Payment of any expenses or reimbursement is considered employer control and indicates a worker to be classified as a W-2 employee.
Tools and materials: If an employer furnishes tools or materials, this again indicates employer control and should be classed as a W-2 employee. 
Investment: If there is a substantial investment made by the worker in facilities used to perform job duties, then this indicates a 1099 worker.
Profit or loss: The potential for profit or loss by the worker indicates 1099 worker status. 
Exclusivity of work: Working for a number of different people at the same time indicates 1099 worker status. 
Available to general public: If the worker's services are available to the general public, then this usually indicates they are a 1099 worker.
Right of discharge: The employer has a right of discharge. The 1099 worker cannot be fired as long as they are keeping up to their end of the contract. 
Right to quit: The right to quit at any time indicates an employee-employer relationship and should be classified accordingly.

What qualifies as a W-2 employee?

  • A W-2 employee has an ongoing, continuous position in your business. They have set hours and days that they work and you may require them to attend meetings, events, and other company gatherings. You will be responsible for paying your share of employer payroll taxes, but that's a small price considering how the IRS will penalize you for misclassifying. 

Does an employer need to pay workers' compensation for a 1099 employee?

  • As an employer, you are not required to pay an additional premium on your workers' compensation policy for subcontractors hired as long as you are collecting proper certificates of insurance. Certificates of insurance will show the insurance policies and limits of coverage that the subcontractors have on themselves. Their coverage should be active with limits equal to or greater than your own. They should have their own workers' compensation policy among other commercial policies. 

Does an employer need to collect proof of workers' compensation from a 1099 employee?

  • Yes. Most every insurance company will have guidelines on how to handle subcontractors prior to initiating a policy with you. These guidelines include, but are not limited to, collecting certificates of insurance with adequate limits, hold harmless agreements, and subcontractor agreements. Each insurance company may require something different, so be sure to check with your independent insurance agent on the facts.

What happens if an employer is dropped from their insurance company?

  • If an employer is dropped from their insurance company, it is usually because they no longer have an appetite for the risk, and proper certificates, hold harmless agreements or subcontractor agreements were not collected, the claims frequency is too high, or safety practices are not established or followed by the insured. If this happens, you can most of the time obtain other insurance from a different insurance company, but usually at a higher premium.

How to be prepared for a workers' compensation audit

  • You can be proactive for a workers' compensation audit by abiding by all the guidelines set by the carrier prior to taking out a policy with them. Have all proper certificates of insurance, hold harmless agreements, and subcontractor agreements signed and up to date. Also, have all W-2 tax documentation and filings for view. Last, make sure safety practices have been followed and documented for the auditor. Being prepared can save you a lot of time and even thousands of dollars.

What is a subcontractor agreement and why does an employer need to have one?

  • A subcontractor agreement should be worked up by your legal counsel and is an agreement between the employer and subcontractor outlining the job specifications and legal requirements of each party, such as insurance policies, that need to be in place. The insurance company may require this, and if not, it is still good to have one to cover your interests.

What is a hold harmless agreement and when does an employer need to have one?

  • A hold harmless agreement should be worked up by your legal counsel and is a document signed by the subcontractor stating that the subcontractor agrees to hold the employer and business harmless should a claim or accident arise as a result of doing work for the employer. This can also be an endorsement that the subcontractor's insurance company applies to their policy if they are willing to do so. This is always a good option and some insurance companies may require it.

What is a MOD and how does an employer get one?

  • A MOD is called an experienced modification rating and is assigned usually after three years of obtaining a workers' compensation policy with a premium of $5,000 or higher. A MOD is basically a scorecard of the employer's frequency and payout of claims and determines how high or low your premium will be.

How does an employer know what class code they need to list on their workers' compensation policy and what are the variations in prices for class codes?

  • A class code is an assigned 4-digit number by the insurance company that classifies your employees and payroll into categories based on their job duties. The risker the job, the more expensive the premium will be for that class. The best way to find out what your company's employee class codes are is to speak with your independent insurance agent as there are hundreds of class codes.

How does an employer have safety procedures, meetings including but not limited to OSHA, to obtain better workers' compensation rates?

  • Having a company culture of safety can save you big money in the long run. Holding weekly or monthly safety meetings, bringing in safety experts and putting in proper precautions will show the insurance company you mean business. They will typically give you a more favorable rate because you are minimizing their risk by being proactive and they will thank you.

What does an employer need to collect on a certificate of insurance from a 1099 employee?

  • This varies from company to company depending on what their requirements are. A good rule of thumb is to make sure the subcontractor has its own workers' compensation and general liability coverage with limits equal to or greater than your own policy.

When and who can file a claim on an employer’s workers' compensation policy?

  • Any employee who is hurt on the job or as a result of doing work for your business can file a workers' compensation claim again the policy. An adjuster will then be assigned to check the validity of the event and report back to the insurance company for a final decision.

What are the consequences of misclassifying an employee as an independent contractor?

  • Consequences can be in the thousands and even hundreds of thousands of dollars in back taxes and penalties incurred by the IRS. If you'd like the IRS to decide if your worker should be filed as a 1099 or W-2, then you can fill out form SS-8 on the IRS website and see where the chips fall. 

What Employees Need to Know about Workers' Compensation

Does an injured employee have to pay for medical treatment?

  • As long as the employer carries a workers' compensation policy, then the employee can have a claim filed against it. Once the claim is filed, an adjuster will be assigned to investigate the event and report to the insurance company. A final decision will be determined and if legitimate, medical expenses will be paid for and reimbursed if applicable.

Should you stay in contact with your employer during a temporary disability from a workers' compensation claim?

  • Yes. Being in contact can be beneficial for both parties and light-duty work may even be an option until you are ready to return to business as usual.

How long does medical treatment last?

  • Medical treatment lasts for as long as medically necessary determined by the physician reporting. 

What options does an employee have if they disagree with the treating physician’s findings or medical treatment?

  • As the employee, you can get a second opinion since that is your right. However, the insurance company may have you obtain a third opinion from a physician of their own choosing. This will test the validity of each physician's recommendations.

What if an employee is not receiving the benefits they deserve?

  • Contacting your independent insurance agent and legal counsel should be taken into consideration if you feel you are not receiving proper care. 

Will an employee have to use their sick or vacation time while off work due to a compensable injury?

  • This all depends on the workers' compensation payout and how long recovery will take. Some instances may call for it, and it is best to discuss with the claims adjuster assigned and your employer.

Is an employee paid for the time that they spent attending physician’s appointments?

  • Unfortunately no. You would be compensated for your regular pay and medical expenses, but the time it takes to go to the appointments is not a paid event.

Which employers are required to provide workers' compensation for their employees?

  • Every employer should have a workers' compensation policy in place to better protect themselves and their employees. However, not every state requires this of business owners and it may be up to their own choosing. Asking your employer if they have a workers' compensation policy is a good starting place. 

States and Workers' Compensation Insurance

Which states require workers' compensation?

  • The majority of states have a workers' compensation policy requirement by law. Each state has different guidelines as to when they require the employer to obtain coverage. Some states require it upon the hiring of just one employee, and other states require it when you have five or more employees. It is best to check with your local independent insurance agent on your state's specifics. 

What are the laws in each state about workers' compensation?

  • The laws vary from state to state on their requirements regarding workers' compensation insurance. Checking with your state website and local independent insurance agent is the best way to know what your state laws are. Find out more information on workers' compensation in your state below.

Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming

Why does an employer need workers' compensation even if it is not state-mandated?

  • Most states do require some form of workers' compensation coverage. However, if your state does not then most independent insurance agents advise having a policy anyway. It only takes one incident and you could be personally responsible for thousands of dollars in medical expenses. It's better to be safe rather than sorry.

Benefits of an Independent Insurance Agent

Knowing all the facts associated with workers' compensation insurance is grand, but an independent insurance agent can get you where you need to go. Your agent has the knowledge, carriers, and know-how to find you the competitive rates and sufficient coverage. 

You have some of the facts, now it's what you do with it that counts. 

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IRS. (2019). https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

Alabama Department of Labor. (2019). https://labor.alabama.gov/wc/insurance.aspx

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