For most Flat Rock, Michigan businesses, workers’ compensation insurance coverage is a required purchase. Businesses with employees must purchase this coverage, even though many other types of insurance coverage are optional.
If you’re opening a new small business in Flat Rock, you may be wondering whether you, too, will need coverage. Even if your business has the right government-required coverage, you may need additional coverage if your business expands.
Requirements and coverage features can vary based on your place of business and your type of business. So it’s important to learn about both to make sure your Flat Rock business follows the law and has the correct coverage.
In this article, you’ll learn whether your business needs workers’ compensation and how coverage protects your employees and your company.
What is Workers’ Compensation Insurance?
Workers’ compensation is a fairly unique type of insurance. Businesses purchase it to provide government-mandated coverage for their employees.
Workers’ compensation comes into effect when an employee is injured at work or becomes ill as a direct result of their job. The employee can receive comprehensive and specific coverage for medical and rehabilitative expenses as well as a portion of lost wages through the program. Death benefits can also sometimes apply.
Worker’s compensation is one of the most complex insurance products your Flat Rock, Michigan business will purchase. Even though Michigan state law requires most businesses to be insured, significant variations exist from state to state.
If part of your business happens outside Michigan, you may be required to meet that state’s own requirements, as well.
Why Does It Exist?
In the U.S., today’s system of workers’ compensation dates back to the early 1900s. The current insurance system began as a compromise to benefit both labor and business. Injured workers were able to access prompt medical care and financial compensation for their injuries, while businesses were able to avoid costly legal suits brought by injured workers.
Does My Flat Rock, Michigan Business Need It?
Workers’ compensation coverage is required for nearly all employees of private and public Michigan businesses, whether salaried or hourly, exempt or non-exempt, part-time or full-time.
Because most businesses are subject to the state’s Workers’ Disability Compensation Act, it’s easier to discuss the exceptions.
- If your Michigan business is a sole proprietorship, you are not counted as an employee. You are considered “self-employed” and exempt.
- If your Michigan business is a partnership or small corporation, you do need coverage for your employees. You can exempt partners or officers from the coverage requirement, but you’ll have to obtain a certificate from the state for a business with no other regular employees. If you do have covered employees, you can exempt partners and officers by contacting your insurer.
- However, sole proprietorships, partnerships, and small corporations can elect to cover these exempt persons, should they choose to.
- In Michigan, contract workers aren’t considered to be your employees by the state as long as they maintain a separate, active business. However, those who are injured while performing work for you may be treated as an employee if they don’t maintain separate businesses.
- Some businesses can get permission to self insure, but these businesses are usually quite large operating with robust finances.
- Other exempt employees include federal government employees, interstate railroad employees, seamen, harbor workers, and longshoremen. Separate policies exist for these workers. Agricultural workers may also be exempt in some cases.
Are There Regional Differences for Multi-State Businesses?
When it comes to workers’ compensation, the biggest challenge for small business owners is the complexity of the system. Each state or territory has its own regulations and no one set of rules applies for benefits, coverage areas, or premiums. This is particularly apparent for companies expanding across state lines, who may encounter a completely new system of rules.
Private–State Fund States
Michigan is one of 13 states that operate under a hybrid system, maintaining a state insurance fund, but also allowing businesses to purchase insurance coverage from private insurance companies. The complete list of all 13 private–state fund states is below:
- New York
If any part of your business takes place outside Michigan, you may be subject to the rules and system of that state as well. Most states fall into one of the following categories.
Monopoly State Funds
However, five states operate their own state funds. Businesses located in these areas must purchase coverage directly from the state. Private insurance isn’t allowed.
- North Dakota
- West Virginia
Two U.S. territories also operate monopoly funds:
- Puerto Rico
- U.S. Virgin Islands
Private Insurance States
Most other areas of the U.S. require companies to carry workers’ compensation coverage, but leave the insurance choice up to business.
Optional Insurance States
A couple of lone-wolf states — Texas and New Jersey — won’t stop you from purchasing workers’ compensation insurance, but don’t require it either.
While buying coverage for your business may be optional, ensuring that you workers are protected is not. Liability for workplace injuries is the direct responsibility of businesses — a very good reason to be insured.
The NCCI States
The National Council on Compensation Insurance (NCCI) is an advisory organization (and by some accounts a ratings bureau) for the industry. Because this council devises the rules for premium computation applied in a majority of states, it creates another set of similar state systems.
Although there are differences here, as well. Some states will use the NCCI’s industry manuals as is, while others will use the manual as a basis and substitute changes here and there in their own state rules.
What Coverage Limits Apply?
There are several parts to workers’ compensation policies, each with their own coverage limitations. There’s no maximum or claim limit covering statutory benefits (often called part one), but there typically is a liability limit for expenses, legal fees, and fines that would otherwise fall to the employer (part two).
In other words, whatever covered costs of treatment and rehabilitation that the injured worker needs, they’ll be able to get, for as long as it’s needed. However, lawsuits brought against the employer as a result of the injury incident, either by the worker or third parties, could exceed the liability coverage limits of the workers’ compensation policy.
In these cases, insurers can offer excess policy coverage for businesses who may want additional liability protection.
Does Your Business Operate Outside Michigan?
For a business with multiple locations, things can get complicated quickly. You must have adequate insurance for all your employees wherever they operate and to the extent each state or territory requires. You can find a few of the differences in this chart.
Given the various monopoly, private–state, and private systems, you may have to buy piecemeal coverage to satisfy other state’s requirements. Your private insurance coverage for Michigan won’t apply in a monopoly state, for instance.
Also, you’ll want to make sure that your business is properly classified for each location. One states classification definition may vary from a neighboring state’s definition.
What Does Workers’ Compensation Cost?
Typical Cost Formulas
Cost is an important consideration for any insurance product. With workers’ compensation, the cost will vary, but computation formulas often share some features.
Typically, each type of worker (clerical, food service, machinery, etc.) is assigned a risk classification. The cost to insure each worker multiplies this classification risk by 1% per $100 of the worker’s salary.
For instance, a risk classification of 1.25 multiplied by 1% per $100 salary would result in a yearly premium of $375 for an employee earning $30,000 annually.
However, this is just one scenario. Below are some other factors that could affect your premiums.
Assigned Risk Plans
An assigned risk policy is typically significantly more expensive than similar coverage obtained through a voluntary market policy. This may be a place you can save on costs, so investigate alternatives where possible.
Auditing Your Auditors
If your insurer performs an audit on your business, ask for a copy of the paperwork. It’s worth the time to double-check computations related to payroll of various types of employees.
Alternative Coverage Options
Some business and trade associations offer packages to their member businesses, which can include workers’ compensation coverage. It’s worth asking your association contact if workers’ compensation policies are available through the organization.
Your premiums are also partially tied to the safety history of your own business, so it pays to emphasize workplace safety. A workplace culture that talks frequently and openly about safety issues is likely to be a safer organization. These conversations should extend well below the management level, to reach every employee in the organization.
Watch for Trends
Keep an eye out for trends. Understand what kinds of injuries are occurring and what factors could be contributing to these accidents, both inside your company and in your wider industry. Identifying these trends could help you designing and implementing a plan to reduce the risk for your workers.
Seek Out Resources
If you’re looking for resources, programs, and advice, you’re not alone. Many businesses are interested in investing in workplace safety. Online resources from government and independent organizations is plentiful. A few include:
- WCA – The Michigan Workers’ Compensation Agency
- NIOSH – The National Institute for Occupational Safety and Health
- OSHA – The Occupational Safety and Health Administration
- Nonprofit Risk Management Center – Offering Workplace Safety Resource Kits
Obtaining workers’ compensation coverage for your Flat Rock, Michigan-based business shouldn’t be something you take on alone. This is a big decision that could have a major impact on your business, so seek input from your insurance professional.
You should be excited when the time comes to expand your business. Whether you’re hiring your first employee or opening an office outside Michigan, make sure you review and meet your new workers’ compensation requirements.
If you’re crossing state lines, navigating the landscape of patchwork state funds and self-insurer regulations can be daunting, so have a trusted financial advisor help you. An insurance expert can make the process more understandable and easier to manage so you can get back to running your business.