Worker’s Comp claims– we all want to avoid them, but, inevitably, one day you’ll likely have a claim.
Because worker’s compensation insurance isn’t something most businesses deal with frequently, it can be difficult to remember who your policy is with, who handles your annual audit, and what you need to do when you actually do need to file a claim. It’s an important policy to have (and required by most states), however, it often gets overlooked in the grand scheme of business insurance needs.
If you’re in the market for a new payroll partner, one of the questions that might come up in your first call is finding out who handles your worker’s compensation insurance policy. There are several ways to handle worker’s compensation, and in this article, we’ll discuss what to do if you are migrating to a different payroll company and want to transfer, add, or start a policy with the new payroll company.
Before we discuss how a worker’s compensation policy transfer works, let’s dive into what Worker’s Compensation insurance is and who needs it.
What is Worker’s Compensation Insurance?
Worker’s Compensation Insurance is business insurance that provides benefits to employees who suffer from work-related injuries or accidents. This insurance will help pay for lost wages, lost work time, and medical care for your employee. Worker’s Compensation policies help both the employee and the employer.
For an employee who is sick or injured at work, your policy (depending on the nature of the injury, your policy, and state requirements) will often pay for medical treatment, ongoing therapy for recovery, and even provide a death benefit if there were a fatal accident to an employee.
For an employer, a worker’s compensation policy can cover these claims so that an employer isn’t sued or forced to pay out of pocket for their employee’s injuries. Without a policy, an employer can be held liable for an employee’s accident or illness, which has the potential to bankrupt the company if the injury is serious enough.
The most common worker’s compensation claims come from slips, trips, and falls. Let’s say you own a restaurant, and one of your cooks slips in the kitchen and breaks their arm. Your general manager calls an ambulance, sends your cook to the ER, and the cook has their arm fixed and put into a cast. Who pays for the trip to the ER? The ambulance? The broken bone? With a worker’s compensation insurance policy, your business is covered from these scary what-if scenarios, and your employee also receives a huge benefit if there ever was an accident.
Who needs Worker’s Compensation Insurance?
Worker’s Compensation Insurance is required by law in most states, with a few exceptions. As a rule of thumb, any business with employees, excluding the owners, should have worker’s compensation insurance.
In the state of Tennessee, where I am located, any business with five or more employees is required to have worker’s compensation. If you want to check out your state-specific guidelines, check out the Workers Compensation State by State comparison article.
What happens if I don’t have Worker’s Compensation Insurance?
Businesses that do not provide worker’s compensation insurance can be fined, imprisoned, and lose their right to conduct business in their state. In addition to the fines and penalties for not having proper coverage, employees can sue you, and you would be required to pay for the lost wages and medical expenses of your employee out of pocket. In short, there is a great financial risk to an employer who does not get insured.
How does Worker’s Compensation work with my payroll company?
Many payroll companies offer worker’s compensation insurance in addition to payroll services. With your payroll company handling your insurance policy, employers have the option of setting up Pay-As-You-Go insurance. In short, a Pay-As-You-Go option allows the employer to pay their premiums on actual payroll totals instead of quarterly or yearly estimates. This can be an excellent cash flow solution for a seasonal business or an owner that doesn’t want to pay a large deposit at the beginning of their policy. If you opt-in to a pay-as-you-go option, your payroll company will most likely handle your annual worker’s comp audit for you as well. To learn more about Pay-As-You-Go Worker’s Comp, check out this article.
How does a worker’s compensation policy transfer to my new payroll company?
If you are changing to a new payroll company, and you already have an existing Pay-As-You-Go policy with your current partner, there are two ways you can transfer that policy to your new partner to maintain the benefits of a Pay-As-You-Go model.
The first option is to have your new payroll company provide a quote for a new policy. You will be asked a lot of information about your current company like legal entity name, annual gross payroll wages, and the type of work performed by your employees. Secondly, you can sign a Broker of Record notice and transfer your existing policy to your new company instead of starting a new policy. In this scenario, you’d retain your current policy, but the ownership of the policy would change. This means you retain your same insurance agency, policy, and claims support, but your new payroll company would be your broker of record.
There are pros and cons to both options, so if you already have Pay-As-You-Go, check with your new payroll partner to see which is the most cost-effective solution for you. Often, your payroll transition is a great opportunity to review your insurance needs. It’s essential that you have the proper coverage amounts, have the appropriate people and states insured on your policy, and make sure your employees are classed properly for the best coverage and rate. Be sure to talk with a licensed agent at the company when asking questions about the best option for your business. (And if you’re considering switching payroll providers, be sure to get yourself prepared by reading our article How to Switch Payroll Services Smoothly.)
What if I have a traditional worker’s compensation policy?
If you have a traditional worker’s compensation policy, this means that you pay a deposit on your policy at the beginning of your policy period. At the end of your policy, you will be asked to complete a worker’s comp audit so that you have paid the total amount needed to continue having coverage. This audit is important for a variety of reasons, but the main reason is due to how your insurance premiums are determined– typically calculated per $100 of payroll. For example, if you estimated that your annual payroll would be $1,000,000, but your annual gross payroll was actually $1,300,000 instead, then you actually owe premiums on the $300,000 of additional payroll wages you issued that you didn’t include in your initial quote. Similarly, if your policy was based on one million dollars in annual payroll, but you only paid $800,000 in annual payroll wages, then your insurance company would owe you a refund on the overpaid premiums.
There are a variety of reasons you might have a traditional policy instead of a Pay-As-You-Go policy (if you’re a new business, if you have a lot of claims in a policy period, etc.). Regardless, if you find yourself transitioning to a new payroll partner, it’s worth asking if you can review your insurance options and see if you’re pay-as-you-go eligible.
In summary, if you are looking for a new payroll partner, you should be asking questions about your insurance coverage as well. There are many options for you as an employer to simplify your back office and reduce administrative headaches. Ultimately, you must have peace of mind that you are covered from risk and that your employees can work in a safe environment.
There are many challenges that business owners face but finding insurance and payroll partners shouldn’t be one of them. If you still have questions, download our guide Top 5 Mistakes to Avoid when Choosing an HCM Platform for more help. Want to learn more about what a transition to Whirks would look like? Click here to view our 2023 Pricing Guide or check out our Guide to Implementation article.
