Workers' compensation

Workers' compensation pays for medical treatment, partial wage replacement, disability and death benefits when an employee is hurt on the job or made ill by it, regardless of fault. In exchange, the employee generally cannot sue the employer, so comp is the exclusive remedy, with exceptions picked up by employers' liability coverage. Each state writes its own law. Nearly every state requires private employers with employees to carry it, with different thresholds and exemptions. Texas lets most private employers legally opt out, as nonsubscribers (Texas Department of Insurance), and South Dakota's labor department says no law there requires it. North Dakota, Ohio, Washington and Wyoming require coverage through an exclusive state fund.

The standard NCCI policy (WC 00 00 00) has Part One for statutory benefits, Part Two for employers' liability and Part Three for other-states coverage. Premium is payroll divided by 100, times the class code rate, times the experience modification rate. Say $400,000 of payroll in a class rated $2.50 per $100 with a 1.10 mod: 4,000 x $2.50 x 1.10 = $11,000 (hypothetical).

Two things go wrong most often. Payroll is placed in the wrong class code, and workers who are really employees are treated as independent contractors, which a premium audit then corrects with an extra charge. The guide on workers' compensation insurance: how it works explains the system, and the workers' comp premium calculator runs your numbers.