Statutory provisions on worker’s compensation are meant for the protection of employees and ensure payment of fixed compensation, helping both employees and employers avoid prolonged and unnecessary litigation.
Subject to variations from state to state, employers with four or more employees are usually required to provide their workers with worker’s compensation insurance coverage.
This can be done in three ways:
- By participating in a state regulated worker insurance program.
- By buying workers compensation policy from a private insurance company.
- By opting for “self insurance.”
An employer’s financial liability related to worker’s compensation can be defrayed through worker’s compensation insurance. Award of compensation is designed to cover medical benefits, provide replacement income and protect the employees with benefits for vocational rehabilitation.
When an employee is injured or becomes ill, most employers provide anywhere from one-half to full pay for the employee to assist in overcoming the injury or illness. In case of injury resulting in
permanent disability, there may be long-term benefits or a lump-sum payment award.
Most small businesses are unable to “self insure” in the absence of adequate financial wherewithal to comply with the statutory requirements for self insurance that are contained in the Worker’s Compensation Act. Participation in a state regulated insurance program can be mandatory or optional depending on state regulations.
If it is optional and the employer buys a worker compensation insurance policy from a private insurance company, a covered employee can file a claim with the insurance company should he or she sustain an injury at the workplace. Generally, the law requires the claim to be filed within thirty days of the injury or knowledge of illness, but some companies have a shorter time frame.
Definition Of “Covered Employee”
It is important to note that relevant legal provisions mandate compensating a “covered employee” against injury or work related illness. It is important to be aware of the definition of a “covered employee,” which is different under specific state laws. In some states, independent contractors and part-time employees fall within the definition of covered employees.
Some states have more lenient laws regarding their coverage, for instance by how many hours the employee works per week. To determine whether the worker is an employee or an independent contractor, take a “look” into the job duties of the concerned individual. One of the most important factors for the test is to assess the “right to control” vested in the employer while also looking into whether the worker is dependent on the employer for his livelihood. If the right of control is there, the worker is an employee.
The Worker’s Compensation Act is an elective act. This means that the employer can accept or reject the act. But the fallout of rejecting can be very serious. It would place the employer in a position where he loses many defenses he may have if he accepts the act. In a case where a worker is injured and the employer has rejected the act, he would be left open to claims without any limits for the award of compensation whereas, if covered, the compensation award has be within limits prescribed by the Act, which are considered reasonable. This latitude is available only in the states of New Jersey and Texas. In all other states, the state worker compensation laws are automatically applicable to all employers.
More often than not, small businesses overlook the need for worker’s compensation insurance. This is a mistake and, apart from depriving the employer of financial insulation in case of need, would amount to legal non-compliance inviting some very hefty penalties.
