Does your employer pay for workers’ compensation? Does it come out of your paycheck? Where does the money come from for weekly payments and settlements? These questions are common among injured workers and employers alike. It takes a while to become fully versed in the details of the workers’ compensation system. That’s exactly why IWP seeks to explain the basics in our Workers’ Comp 101 series. This time, we’ll cover the basics of who pays for workers’ compensation.
The Employer’s Responsibility
In a way, your employer does pay for workers’ compensation. Workers’ comp is a type of insurance. It covers the employer and the employees. Workers’ comp is not deducted from payroll taxes. The employer is 100 percent responsible for paying premiums to an insurance company. It’s the insurance company that ultimately pays out for lost wages, medical expenses, retraining costs, and settlements.
Most employers in most states are required to have workers’ compensation insurance. There are some exceptions to the rule. For example, a business does not have to provide workers’ comp insurance to independent contractors. Other professionals are exempt as well, such as real estate agents. In Texas, under certain circumstances, workers’ comp insurance isn’t required at all. There are rules for sole proprietor businesses, as well. The best option is to review the regulations in your state.
Employers may choose state-sponsored insurance or private insurance, at least in most cases. Larger businesses may be able to opt for self-insurance, but that means that they’re responsible for the cost of workers’ compensation claims. Let’s talk about the different insurance companies.
From the State
Some insurance funds and programs are run by the state, such as the Department of Labor or another entity, whether commerce- or industry-driven. Your employer pays premiums to the state-sponsored program, and it identifies the benefits to which you’re entitled following a workplace injury. By keeping up with premiums or whatever payment system is in place, your employer pays for workers’ compensation for every employee.
Private Insurance Companies
Private insurance companies are another option, and employers in most states can choose to go with a private company. That’s not the case in places like Washington state, however, where there are no private insurers for workers’ compensation.
Aside from the private classification, this works like any other type of insurance. As with state-run institutions, the employer pays a premium to the insurance company. If you get injured at work, then the insurance company is in charge of any benefits you receive from your workers’ comp claim.
Some employers are big enough that they can go with self-insurance. They have the assets necessary to cover any liabilities or workers’ compensation payouts. Even in those cases, though, the employer will typically turn to a third-party administrator to handle the claims.
So, in a way, your employer pays for your workers’ compensation, but most of the time, your employer won’t be responsible for the actual payout of benefits or anything else associated with your claim. As you can see, the process is involved. That’s one reason why IWP strives to offer as much support to injured workers as possible.