No-fault workers' comp laws: Fast claims, fewer lawsuits
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What is workers’ compensation insurance?
Workers’ compensation is an essential insurance policy for any business that has employees. Most state governments require that you have it. Workers’ comp is designed to help workers if they have an accident on the job and are injured, or if workplace conditions lead to an illness. It pays out to the employee (or survivors) for the following categories:
- Medical benefits: This covers healthcare costs, including doctor’s appointments, hospital stays, emergency room visits, prescriptions, physical therapy, and medical equipment.
- Disability benefits: This helps the affected employee recover lost wages because of being unable to work. It could include a permanent disability or a temporary disability. Limits are determined by the state.
- Vocational rehabilitation benefits: Injured workers are provided with resources to help them find a new job if they’re unable to return to their original job. It can include services such as job training, resume assistance, and tuition assistance.
- Death benefits: Also known as survivor benefits, this is extended to the employee’s dependents in the case of a fatal accident. Funeral and burial costs are covered, and lost income may be included as well.
What does “no-fault” mean in workers’ compensation coverage?
In certain insurance categories, there are two types, “fault” and “no-fault.” The categories refer to the burden of proving liability. In a no-fault system, the claimant doesn’t need to prove liability, whereas in an at-fault system, that does need to be established. You may be most familiar with this concept in the context of car insurance. Some states are at-fault jurisdictions, where it’s first determined who caused the auto accident, and then that driver’s insurance compensates the other party. In no-fault states, each driver’s insurance pays for their losses, regardless of who was responsible.
Other types of insurance, like personal injury, operate solely in fault-based systems. For those lawsuits, proving liability is a major part of the litigation.
In the case of a workers’ compensation claim, being “no-fault” means the employee who was injured on the job doesn’t need to show whose actions caused the accident. It could be the result of the employee, the employer, or a third party. Regardless of who is responsible, the worker will receive their benefits.
Common misconceptions about no-fault workers’ compensation insurance
Sometimes there’s some confusion about what no-fault workers’ compensation means. Here are some false assumptions you might hear and the facts to address them.
“No-fault” really means “the employer’s fault.”
It’s true that if an employee gets injured and the claim is accepted, then workers’ compensation insurance will pay their claim. However, that does not mean the employer is responsible for the injury. No-fault means just that – fault wasn’t determined.
If the employee caused the accident, then workers’ comp doesn’t apply.
Again, liability is not a factor in no-fault insurance. So, even if the employee caused the accident that led to their injury, workers’ compensation insurance would still pay out the benefits. There are a few exceptions to this, such as things like intoxication, willful misconduct, fighting, and intentional self-harm.
“If I hire 1099 contractors instead of W-2 employees, then I don’t need to have workers’ compensation insurance.”
While states typically don’t require workers’ comp insurance coverage for 1099 contractors (and in some cases, they aren’t even eligible for it), employers must be extremely cautious with this matter. The IRS determines if someone who does work for you is an independent contractor or an employee based on the relationship between the two parties. If you misclassify one of your workers and don’t include them as an employee for workers’ compensation purposes, you can be penalized, sued, and forced to pay claims out of pocket.
“Workers’ compensation insurance is a huge hassle for employers.”
Small business owners will need to give their insurance company basic information about the number of employees, payroll, and nature of the business, but after that, it’s pretty hands-off for employers, because the insurance providers often handle most of the claims process. And because the workers’ compensation system is no-fault, there’s no major investigation work determining who was responsible, so the whole thing is pretty straightforward.
How the no-fault system benefits employers and employees
The no-fault system greatly simplifies the workers’ compensation claims process. However, that means there’s a trade-off between employees and employers, as described below:
For employees
Because the cause isn’t important and doesn’t need to be proven, most workers’ compensation claims are approved quickly. That means injured employees have faster access to healthcare, their medical bills are paid promptly, and they also receive reimbursement for lost wages quickly. However, in exchange for that, employees give up their right to sue the employer for negligence, except in extreme cases.
For employers
Because the cause isn’t important and doesn’t need to be proven, the claims process is streamlined. This helps reduce disputes and means business operations are minimally impacted. If the injured employee accepts the benefits offered under workers’ comp, then they waive the right to sue their employer.
However, if they reject the benefits, they can pursue litigation. In this case, the employer’s liability insurance, which comes with workers’ comp, would cover legal costs for the business.
What doesn’t qualify for workers’ compensation in a no-fault system?
While the system is generally no-fault, there are some exceptions where an employee might not be eligible for benefits, such as:
Injuries caused by gross employee misconduct
There are a few exceptions that affect an employee’s eligibility for benefits, such as:
- Intoxication
- Drug use
- Horseplay
- Intentional self-harm
However, a recent ruling in New York showed that employers can’t rely solely on intoxication to disqualify someone from workers’ comp coverage if other risks or safety hazards exist.
Injuries due to severe employer misconduct can still result in lawsuits
Additionally, even if an employee accepts workers’ compensation benefits, they can still sue in rare cases if they can accuse the employer of:
- Gross negligence
- Intentional harm
Certain workers aren’t automatically included and in some cases are excluded
There are also groups of workers who don’t automatically fall under workers’ compensation coverage, such as:
All of these workers can still choose to purchase their own workers’ compensation policy. In the case of contractors and sole proprietors, it might be a good idea to do so, because personal health insurance won’t cover medical care costs related to job injuries, nor would it offer permanent or temporary disability benefits.
Certain types of damages are not covered
Pain and suffering aren’t included in workers’ compensation benefits. They’re strictly limited to medical expenses, wage loss, reimbursement for vocational training, and death benefits.
Why is it important to have workers’ comp in a no fault-system?
Most states require employers to hold workers’ compensation insurance. Non-compliance often results in penalties and fines, and in some states, can even amount to jail time.
How a no-fault system affects the claim process
A no-fault workers’ comp claim is fairly uncomplicated. However, steps need to be followed closely, and all tasks must be completed within a specific timeframe. Here’s the process in a nutshell:
- Employee reports injury to the employer.
- The employer informs the employee of their rights and provides them with paperwork to fill out. Depending on the state, the employer may need to complete forms as well.
- When claim forms are complete, the employer files them with the insurance provider. Some states also require the injury to be reported to the workers’ compensation board.
- Insurer approves or denies claim and pays benefits accordingly.
When your employee suffers a work-related injury or illness, there are several steps you must take to get the workers' comp claim filed and benefits approved.
How are disputes resolved in a no-fault system?
If an employee rejects the compensation offered by workers’ comp, then the employer (and their insurance provider) must try to come to some form of agreement. The good news is, these disputes rarely go all the way to court.
Less than 5% of workers' compensation cases end up going to trial. Most are resolved through settlement negotiations, mediation, or arbitration. A work injury settlement is either paid as a lump sum or structured over a certain period.
How much does a no-fault workers’ compensation insurance policy cost?
The cost of workers’ comp insurance can vary widely depending on your business. However, for small businesses, the cost often ranges from $40 to $100 per employee, per month. Here are some factors that’ll help determine what you pay:
- Industry and job risk level
- Payroll amount
- Location
- Claims history
- Coverage limits and deductible
Additionally, your insurance carrier will perform an audit each year to confirm you paid for the appropriate coverage the previous year. It’s designed to ensure your estimated payroll (which was used to determine your premium) matches up with what it was. If the numbers are off for any reason, the premium would be adjusted accordingly.
Barring something like a change in the number of employees or salary totals, the best way to lower your workers’ compensation premium is to minimize your risk. Implementing a risk management plan will help your business avoid accidents that could lead to claims. Loss control measures include employee safety training, having emergency procedures in place, outfitting workers with personal protective equipment (PPE), and posting signs and labels that identify hazards.
It’s also important to pinpoint what types of injuries or accidents are most likely to occur in your line of business. Are your employees on their computers all day? Then carpal tunnel might be an issue. Do they work in construction? Then, struck-by-object injuries may be more common.
Address those specific types of incidents by making employees aware of how they can protect themselves. You can also check out the top 10 causes of workplace accidents and their costs to see if your company is vulnerable to these types of injuries.
How do no-fault workers’ comp laws vary by state?
Each state determines its laws regarding workers’ compensation insurance. They’re typically overseen by workers’ compensation boards. There are nuances regarding when employers must have workers’ comp, what the penalties are for non-compliance, and more.
Here are some details for certain states:
- California: Requires workers’ comp once there’s one employee. Sole proprietors with no employees in a few high-risk professions must also hold workers’ comp insurance. It can be bought from a private insurance company or through a state fund. California uses Medical Provider Networks (MPN) to provide care for work-related injuries. They’re set up by insurers and approved by the state’s Division of Workers’ Compensation.
- Florida: Requires workers’ comp when there are at least four part-time or full-time employees. Sole proprietors in construction businesses also must have workers’ comp, even if they don’t have employees. There’s a last-resort state fund for businesses that are denied coverage by a private insurer. Florida is known issuing stiff fines and stop-work orders if a business is found to be operating without the required coverage.
- Michigan: Requires workers’ comp if at least one employee is working 35+ hours per week for 13 weeks or more, or if they regularly employ three or more people, whether part-time or full-time.
- Minnesota: Requires workers’ comp once there is one employee, even if they’re part-time.
- New Jersey: Requires workers’ comp once there’s one employee, even if they’re just part-time or seasonal. In certain cases, an out-of-state employer may need coverage if a contract is entered into in New Jersey or if work is performed there.
- New York: Requires workers’ comp once there is one employee, regardless of classification – part-time, full-time, temporary, seasonal, or unpaid (including volunteers and family members). Penalties can be severe, ranging from $1,000 to $5,000 for a company with five or fewer employees, or a fine between $5,000 and $50,000 for more than five employees. Five years or more of non-compliance can result in felony charges, and contractors found guilty of non-compliance can be barred from working on or even bidding on public works projects.
- North Dakota: Requires workers’ comp once there’s one employee. Policies must be purchased through the state fund. All employers—even those considered high risk—are guaranteed coverage.
- Ohio: Requires workers’ comp once there’s one employee. Volunteers are exempt if they’re not working for a public employer. Out-of-state workers are subject to workers’ compensation laws in their state. Policies must be bought through the monopolistic state fund.
- Washington: Requires workers’ comp once there’s one employee. Policies must be purchased through the state fund. To buy workers’ comp insurance, companies must first obtain a business license and an account with the Washington State Department of Labor & Industries, which determines classifications and sets coverage rates.
- Wyoming: Businesses operating in Wyoming must register with the Division of Workers’ Compensation and Unemployment Insurance to have their coverage determined. Policies must be purchased through the state fund. Injured workers must report the injury within 72 hours after it occurs.
Several states allow businesses to self-insure or self-fund their workers’ compensation. To do this, the company must prove they have enough money to cover expenses related to a workplace injury or illness.
Workers' compensation laws in your state
Get the right workers’ comp coverage with Insureon
If you’re thinking of hiring an employee (and even if you’re self-employed), it’s important to find workers’ compensation coverage. But that’s easy to do with Insureon. Start by filling out a quote online. Our expert agents are available to help with any questions you have. We’ll then send you options from some of the top workers’ compensation providers in the United States so you can compare.
You’ll find the rates are cheap, but the plans are comprehensive. Once you choose a policy and sign the forms, we can get your workers’ compensation insurance active in about 24 hours. You’ll also have access to our customer portal, where you can find your plan documents and download a certificate of insurance (COI).
Sara Singh, Contributing Writer
Sara’s career has taken her across the writing spectrum. She started as a television news producer, then was hired as the marketing manager for a financial services firm. After working for the publisher of the world’s most widely circulated magazine, Sara went into the agency scene as a copywriter and finally served as the in-house content writer for a tech consultancy. Now, she freelances for a variety of clients so she can have the flexibility to do volunteer work and travel.
