Workers' compensation insurance protects business owners from the high costs of work-related injuries. In Arizona, all businesses with employees must carry this coverage.
Some coverage exceptions include independent contractors, casual or occasional workers, and domestic workers who are only employed in a home.
Sole proprietors and independent contractors are not required to have Arizona workers’ compensation insurance coverage, though they could elect to carry coverage for themselves. However, if the sole proprietor of a business hires employees, those people must be covered.
Even when it's not required, it can be a smart business decision to buy workers' comp. A job-related accident can result in costly medical expenses that could devastate a small business.
You’re not required to provide workers’ compensation insurance for independent contractors in Arizona. However, be sure that the worker qualifies as a contractor. Disputes sometimes arise over employee classifications, and a contractor could be considered an employee.
If a case gets to court, these factors will be considered to determine whether a worker is a contractor or an employee:
Even if you think you’re hiring an independent contractor, look at the totality of the circumstances to make sure that you’re not required to provide workers’ compensation.
Arizona uses the National Council on Compensation Insurance (NCCI) system to establish codes for various occupations. Each individual employee would be classified under the code, which is based on how hazardous their specific job is.
Your premium is based on the class codes of each of your employees. For example, a landscaper has a higher rate than an office worker because that job is inherently more dangerous.
There are three ways to buy a workers' comp policy in Arizona:
Workers' compensation covers the cost of medical treatment for work-related injuries and occupational illnesses. Injured workers receive two-thirds of their regular monthly wage during recovery. Benefits also include permanent compensation or vocational rehabilitation for serious injuries that impact a worker's ability to perform their job.
Policies typically include employer's liability insurance, which helps pay a business's legal expenses if an employee blames their injury on the employer's negligence and files a lawsuit.
Under Arizona law, claims are based on a no-fault system. Workers receive medical benefits and compensation regardless of the cause of a job-related accident, if eligibility conditions are met.
Filing a claim must be done within a specific time frame. Employers must submit an Employer's Report of Injury form within 10 days of receiving notice about an accident. Injured workers must submit a Worker's Report and Physician's Report of Injury form within a year of when the injury occurred to receive workers' comp benefits (the doctor's office typically submits these forms).
Arizona has a workers' compensation fee schedule, updated annually, that sets what healthcare providers get paid for providing different types of medical treatment.
Once an employee accepts workers' compensation benefits, they give up the right to sue their employer. This provision is called the exclusive remedy.
The Industrial Commission of Arizona (ICA) regulates workers’ compensation insurance. If you fail to carry the correct insurance, there can be stiff penalties.
For one thing, an injured employee could sue you, which would likely result in far more expensive damages than the premium you would have paid for insurance.
If the employee files a claim with the ICA and isn’t covered with an active policy at your business, the ICA's Special Fund Division will pay the benefits. It would then charge you for reimbursement of those benefits paid plus a penalty of 10% of any benefits paid or $1,000, whichever is greater.
You can also be charged a separate penalty of $1,000 just for not having the correct insurance, and additional penalties of $5,000 and eventually $10,000.
Visit ICA online at https://www.azica.gov/ for more info.
If a worker dies on the job, their survivors might be eligible to receive workers’ comp death benefits. These benefits are available to a spouse, children, or other dependents who rely on the deceased person for financial support.
These survivors are eligible for death benefits:
If there are no children or surviving spouse, parents or siblings who are under the age of 18 and who depend on the deceased worker for financial support could also qualify to receive death benefits.
The surviving beneficiaries can receive a combined 67% of the worker’s average monthly wage, up to a statutory maximum of $4,741 for injuries that happened in 2019.
Workers’ comp benefits in Arizona also include up to $5,000 in burial expenses.
Until 2018, there were no settlements for workers’ compensation claims in Arizona.
The new law is for “full and final” settlements, which means parties may settle accepted claims with approval by the ICA. Those settlements must include projected future medical costs and a statement that the parties have reasonably tried to protect Medicare interests, which could include a Medicare savings account.
A workers’ compensation settlement benefits both the employer and the employee. The employee receives a lump sum payment or a structured settlement that is paid in installments over a set period of time. The employee also gives up the right to future benefits, which means that the employer will no longer be liable for legal expenses associated with that claim.
Injured workers have one year from the date of injury to file a claim. Workers have a responsibility to notify the employer as soon as possible when an injury has occurred. Once the employer's insurance company has received the claim notice, it has 21 days to accept or deny it.
If an insurance carrier denies a claim, the worker is required to request a hearing within 90 days of the date of the denial notice.
The ICA's Claims Division does not provide legal advice, so you may want to contact a workers' compensation attorney for disputes about claims or settlements.
If you are ready to explore workers’ compensation coverage options for your Arizona business, start a free online application today to compare quotes from top-rated insurers. Our licensed agents in Arizona are available to help you find the best policy to protect your business.