Workers Compensation Insurance
Workers Compensation Insurance is designed to provide assistance with medical expenses and loss of income due to an employment related injury or illness.
Modern society considers employment related accidents and illnesses to be a social issue, the cost of which should be incorporated into the cost of goods and services provided.
The cost of Workers Compensation Insurance therefore, should be built into the price of products and services delivered by an employer. Maryland Law requires employers to carry Workers Compensation Insurance.
Workers Compensation policies consist of two basic components, Workers Compensation and Employer's Liability coverage.
Workers Compensation pays on behalf of the employer, any benefits due the employee under Maryland Workers Compensation law or any other states designated on the policy.
Employer's Liability protects the employer if for some reason the injuries to the employee were not compensable under the Workers Compensation Act or if the employee files a claim against the employer for damages.
Your Workers Compensation premium is based upon a predetermined rate per one hundred dollars of payroll. All occupations fall under their own classification code which is assigned a specific rate. Rates assigned to the various classification codes are based on the occupation's historical risk. In other words, a classification that includes a relatively dangerous occupation, such as roofing will pay far more than a company that has only clerical personnel.
Let's suppose you employ a secretary at $25,000 per year. The secretary falls into the occupational class code 08810, "Clerical- Office Workers NOC" with the hypothetical rate of .35 per one hundred dollars of payroll. The premium would be determined as follows: .35 x 25,000/100 = $87.50. Insurance companies typically add a flat fee of $125 to $250 to the raw premium calculation, hence in our example we would add $87.5 to the expense constant, say $125, for a total premium of 87.5 + 125 = $212.5
Most of the time it is impossible for an employer to predict the future well enough to accurately predict his payroll for the year. When a new policy is written, the employer will be asked to estimate the payroll(s) for each classification he plans to employ during the upcoming policy period. The employer is then billed the appropriate premium for this estimated payroll. At the end of the policy period the insurance company will conduct an audit to determine actual payroll attributable to each occupational classification employed by the business. If the employer's actual payroll was less than estimated original payroll estimate, he will receive a refund, likewise if the employer paid out more payroll than originally estimated, he will be billed for the additional exposure.
Loss experience also plays a role in how much a business pays for Workers Compensation Insurance. Just as your automobile insurance company tracks your accident history and may increase your premium or cancel you as a result of your loss history, the same is true of Workers Comp. A poor loss history can result in significantly increased premiums or even non-renewal of the policy. This makes it no only morally and ethically right, but financially necessary that employers provide the safest possible working environment for their employees and where appropriate hold safety meetings and/or safety training sessions.
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