Employees in several states: other-states coverage and multistate workers' comp

When employees work in more than one state, workers' comp turns on which state's law governs each injury, and whether your policy is set up to pay under that law. The standard NCCI policy handles this through Item 3.A of the Information Page, which lists states with full coverage, and Item 3.C, which gives Part Three "other states" insurance for states you did not list. Other states insurance is a safety net with conditions, not a replacement for naming a state where you have regular operations.

Why more than one state's law can apply

Every state's comp act decides for itself who it covers, and an employee can fall under more than one at once. The tests most commonly used are:

• Where the contract of hire was made. A worker hired in one state who is hurt in another may be able to claim in the state of hire.
• Where the employment is principally localized. The state where the worker mainly works or is based.
• Where the injury occurred. Many states apply their law to any injury inside their borders, even to a visiting worker.
• Where the employer is located or has its business base.

New Jersey's Division of Workers' Compensation, for instance, says an out-of-state employer can be caught if the contract of hire was made in New Jersey or the work is done there (see New Jersey). Statutes differ on which test controls, on what counts as temporary, and on whether an employee can pick the state with the better benefits. Some states let an employee who is entitled to benefits in two states recover in only one. For the detail, see workers' comp requirements by state: who must carry it and workers' comp and benefits requirements by state.

Extraterritorial reciprocity

Many states have an "extraterritorial reciprocity" clause so a temporary visiting employee stays under the home state's policy. The thresholds differ. NCCI's October 2017 circular on travel across state lines quotes Florida's Division of Workers' Compensation guidance that temporary means no more than 10 consecutive days and a maximum of 25 total days in a calendar year, as long as the home state's statute gives reciprocity. That is Florida's rule as quoted in 2017, so check the Division's current guidance before relying on it. Reciprocity requires both states to have the clause.

Item 3.A, Item 3.C and Part Three

The standard policy is NCCI's Workers Compensation and Employers Liability Insurance Policy, WC 00 00 00. The Information Page has these entries that matter here:

NCCI's circular quotes two policy conditions. Under Part Three, Section A, Item 4: "If you have work on the effective date of this policy in any state not listed in Item 3.A. of the Information Page, coverage will not be afforded for that state unless we are notified within thirty days." And under Section B: "Tell us at once if you begin work in any state listed in Item 3.C." The policy defines "state" as a state of the U.S. or the District of Columbia.

In practice, this means:

1. Operations already running in a state on the effective date must be disclosed. You have 30 days after the effective date to tell the carrier, or there is no coverage for that state.
2. A new state mid-term is covered under Part Three as long as you notify the carrier at once. The carrier then adds the state to 3.A and charges premium for the payroll there.
3. Some states will not accept other-states coverage. The four exclusive state fund states (North Dakota, Ohio, Washington and Wyoming) require coverage through the state, so a policy's Part Three does not stand in for it. See Monopolistic state funds: workers' comp in ND, OH, WA and WY and stop gap coverage in monopolistic states for the employers liability gap.
4. Some states require a policy listing them. The Florida guidance quoted in the NCCI circular says an out-of-state employer with employees working in Florida must have a Florida workers' compensation policy, or an endorsement that lists Florida in 3.A. A Florida contractor that hires an out-of-state subcontractor must obtain that proof or else cover the subcontractor under its own policy under Fla. Stat. 440.10(1)(g).

Do not read a few lines of the circular as the whole law. NCCI says it does not decide whether a policy extends to a traveling employee; the carrier does, subject to the state statutes.

Premium for several states

Premium on a multistate policy is calculated state by state. The carrier applies each state's loss costs or rates, class codes and expense constants to the payroll earned there, so one job class can carry different rates in different states. The Basic Manual says premium for operations under Part Three is calculated with the workers compensation rules and rates once the state is added, using the rates in effect on the policy's anniversary rating date, plus the applicable mod. When more than one state is on the policy, the highest expense constant is charged.

Two facts shape how the experience rating works:

• Interstate rating. NCCI's plan is approved in 39 jurisdictions. It does not apply in California, Delaware, Michigan, New Jersey, New York or Pennsylvania, or in the four exclusive-fund states, which have their own bureaus or administrators. An employer with operations in both NCCI and independent-bureau states can therefore have several mods, one for each plan. Indiana, Massachusetts and North Carolina use the NCCI plan but produce intrastate mods through their own bureaus. See The experience modification rate (EMR) explained (the facts come from NCCI's ABCs of Experience Rating).
• Audit. At the premium audit, the auditor allocates payroll by state, class and job. Records that cannot show where employees worked usually get assigned to the state and class with the highest rate.

Worked example (hypothetical)

Say a 35-employee electrical contractor is based in Georgia with a policy listing Georgia in 3.A and Part Three coverage for other states. In March it wins a six-month job in Florida with eight employees.

• Under Florida's rules it may need a Florida policy or an endorsement listing Florida in 3.A before the crew starts; the contractor tells its broker the week it signs the contract, not after the first injury.
• The carrier adds Florida, charges the Florida rate on the electricians' payroll in that state, and keeps the Georgia payroll on Georgia rates.
• An injury at the Florida site in July is then handled under Florida's act. If the contractor had not told its carrier, the claim would sit on a coverage question while the injured worker waits.

The numbers are invented for illustration. The point is the order of operations: contract, call to the broker, endorsement, start.

Employers liability, travel and abroad

Workers' comp is the no-fault side. Employers liability, Part Two, responds to lawsuits that get past the exclusive remedy, such as third-party-over actions and dual capacity claims, with its own state-by-state rules. Part Two excludes bodily injury outside the United States, its territories or possessions, and Canada, but the exclusion does not apply to a citizen or resident of the United States or Canada who is temporarily outside these countries (per the same NCCI circular). Employees sent overseas for long periods, foreign nationals and hires abroad usually need foreign voluntary compensation and foreign liability cover. NCCI notes that Connecticut and Florida approve a Foreign Voluntary Compensation and Employers Liability endorsement, and that coverage in other cases depends on the state law and the carrier. See employers' liability insurance.

A short checklist for multistate employers

1. Map your payroll by state and job at least once a quarter, including temporary projects.
2. Tell the broker before work begins in a new state, and ask which states must be named in 3.A rather than left to Part Three.
3. Check each state's rule for out-of-state employers, and whether your state of hire is also a claims state.
4. Check whether the state is an exclusive state fund or has its own rating bureau, which changes the mod and the policy structure.
5. Keep time records that show where employees work.
6. Ask the carrier how remote workers in other states are handled.

Key takeaways

• More than one state's comp law can apply to a single employee, depending on where the contract was made, where the work is based and where the injury occurred.
• On the NCCI policy, Item 3.A names the states with full coverage; Item 3.C and Part Three cover other states if you notify the carrier at once, and unlisted states with work at inception need notice within 30 days.
• Exclusive-fund states (ND, OH, WA, WY) and states such as Florida may require their own coverage or an endorsement naming the state.
• Premium is calculated state by state, and experience rating differs between NCCI states and independent-bureau states.
• Tell your broker before work starts in a new state, and keep payroll records by state and job.