How to get the best workers' compensation policy at the lowest price
Workers' compensation insurance covers medical expenses for U.S. employees who are injured on the job for any reason. Before workers' compensation, employees had to prove that an injury resulted from employer negligence — a nearly impossible task.
To understand workers' compensation insurance, remember that it's a win-win proposition. While employees obviously benefit, so do employers. Without this coverage, your organization's assets may be drained by the expenses of a single injury.
Don't make the mistake of avoiding or procrastinating a decision on workers' compensation insurance. Following are ways to get the best policy at the lowest price.
1. Learn about the workers' compensation laws in your state
The first thing to remember about workers' compensation insurance is that requirements vary greatly across the country. Some states don't require it, while others always require it. Still others require workers' compensation insurance only for organizations of certain sizes.
If your organization has employees or volunteers, then find out the specifics of your state's laws. Start with this state-by-state listing of workers' compensation officials from the U.S. Department of Labor.
2. Consider coverage for independent contractors and volunteers
Some states require workers' compensation coverage for part-time employees, contractors and volunteers as well as full-time employees. Other states require coverage only for full-time employees.
This means that you must understand the difference between employees and independent contractors — and classify workers correctly. When it comes to workers' compensation, improper classification can be costly.
The distinction between an employee and a contractor isn't always obvious. A number of tests are used to tell the difference:
- The Fair Labor Standards Act defines an employee as someone who works for a single organization. Employees are economically dependent on and directly supervised by that organization. In contrast, independent contractors are free to work with many organizations and direct their own daily activities.
- The IRS asks three questions about organizations: Do they control what workers do on the job? Do they control how workers are paid and reimbursed for work-related expenses? And is the relationship between organization and worker defined by a single contract with a related set of benefits? A "yes" answer to any of these questions points to an employer-employee relationship.
- The U.S. Department of Labor applies a list of "economic realities" to measure a worker's degree of independence. For example, a longer-term relationship with an organization suggests that a worker is an employee — not an independent contractor.
Even if your state doesn't require workers' compensation insurance for contractors and volunteers — or employees —consider getting it anyway. Doing so offers the greatest protection from potential liability.
3. Find an agent or broker who understands your needs
Workers' compensation insurance is complex. Seek an agent or broker who specializes in policies for nonprofits. You might ask for referrals from local organizations that are similar to yours.
When you meet with an agent or broker to discuss coverage options, explain what employees, contractors and volunteers do for your organization. Be realistic — and specific — about their risk of injury. Also ask about coverage for expenses beyond medical treatment, such as lost wages and court costs for liability suits.
Above all, don't be afraid to shop around. Meet with at least three different agents or brokers. Form a core group of employees to listen to each of the presentations and select the agent or broker who best meets your organization's needs.
4. Find ways to lower your rates
To qualify for the lowest rates:
- Get coverage as early as possible. The best time to get workers' compensation coverage — if you don't already have it — is now. Costs for coverage can increase steeply with the number of employees. See if you can lock in a lower premium rate now, before your payroll grows.
- Pay your premiums on time. A pattern of skipped or late payments may result in increased rates.
- Implement safety policies to reduce the risk of injury. Start by offering first aid training to your employees. Then think about appropriate risk management for your organization. If your employees, contractors and volunteers work mostly in an office environment, for example, then invest in ergonomic equipment to reduce repetitive stress injuries. If relevant, provide training in proper lifting techniques.
- Ask your agent or broker about credits. Some insurers offer lower rates for workplaces that are certified as drug-free or meet other criteria.
Bottom line: if you balk at the initial quote for workers' compensation coverage, remember that you have some control here. You can take active steps to reduce the cost.
This article draws on the expertise of Grace Davies, a Minneapolis-based attorney with special interest in product liability, medical malpractice and employment discrimination.
Nonprofit Insurance Blog: 6 keys to keeping workers compensation costs low(er) for your nonprofit by Brett Cohrs (2014)
Nonprofit Insurance Blog: Workers compensation insurance for nonprofits by Brett Cohrs (2013)
Insureon: Workers' compensation insurance for nonprofit organizations (2016)
Amaxx Workers Comp Resource Center: Volunteers and workers compensation by Rebecca Shafer (2011)