Tennessee Workers Compensation Insurance
What is Workers Compensation Insurance?
Who is required to carry Workers' Compensation insurance on their employees?
Employers are legally obligated to take reasonable care to assure that their workplaces are safe. Nevertheless, accidents happen. When they do, workers compensation insurance provides coverage.
Tennessee Workers Compensation insurance serves two purposes: It assures that injured workers get medical care and compensation for a portion of the income they lose while they are unable to return to work and it usually protects employers from lawsuits by workers injured while working.
Workers receive benefits regardless of who was at fault in the accident. If a worker is killed while working, workers comp (as it is often abbreviated) provides death benefits for the worker’s dependents.
According to the TN Department of Labor & Workforce Development:
- All employers with five or more full- or part-time employees.
- All employers in the construction or mining industry must have coverage if
they have any employees or corporate officers.
- State and local governments and those employing farm laborers or domestic help are exempt, but may elect workers' compensation coverage.
How many employees do I have to have before I am required to have workers' compensation insurance?
Generally, Tennessee employers, not in the construction or coal mining industry, with five (5) or more full or part-time employees are required to carry workers’ compensation insurance on those employees. Corporate officers and family members meeting the definition of employee are included in the count towards the total, regardless of whether or not the officer(s) elects to decline coverage.
Any person engaged in the construction industry is required to carry workers' compensation insurance on their employees. Effective March 28, 2011, construction employers in the contracting group designated by the National Council of Compensation Insurance (NCCI) must have workers’ compensation insurance on all of their employees and themselves unless you are a sole proprietors or partners with no employees being paid directly by the property owner).
Employers in the coal mining industry with one or more employees are required to provide workers’ compensation coverage. State and local governments and those employing farm laborers or domestic help are exempt, but may elect workers’ compensation coverage.
Subcontractor and General Contractor Information
A subcontractor can elect to be covered by the general's workers' compensation insurance by filing Agreement of General Contractor to Provide Workers’ Compensation Coverage to Subcontractor (Form I-15) with the Division of Workers' Compensation. This form allows the general contractor to withhold premiums from the subcontractor's payroll to cover the subcontractor. Form I-15 must be signed by the general contractor and the subcontractor, notarized and filed with the Tennessee Department of Labor and Workforce Development. Failure of the general contractor to file with the Department of Labor and Workforce Development does not relieve the obligation of the insurance company to provide coverage to a subcontractor when the subcontractor can produce evidence of payment of premiums to the insurance company.
The subcontractor acting as a self-employed individual is not an employee of the general contractor and has no coverage as long as he is not working as an employee. To determine whether an individual is an employee or subcontractor, the following factors should be considered:
(a) The right to control the conduct of the work;
(b) The right of termination;
(c) The method of payment;
(d) The freedom to select and hire helpers;
(e) The furnishing of tools and equipment;
(f) Self-scheduling of working hours; and
(g) The freedom to offer services to other entities.
The law prohibits an employer from deducting any portion of the workers' compensation premium from the wage or salary of any employee. There is no form that will waive the rights of employees of subcontractors. The subcontractor must provide coverage for his employees.
A subcontractor can have his own workers' compensation coverage and furnish proof of this coverage to the general contractor. A general contractor can require the subcontractor to have workers' compensation insurance.
Note to Subcontractors obtaining workers’ compensation coverage: Most subcontractors are sole proprietors or partners. Sole proprietors and partners are not covered by their workers' compensation policy when it is written; only the employees are covered. The subcontractor that is a sole proprietor or partner may elect to be covered by his own workers' compensation policy by filing Form I-4 (Election of Sole Proprietor or Partner to Come Within the Provisions of the Tennessee Workers’ Compensation Law) with the Tennessee Department of Labor and Workforce Development.
Regardless of whether insurance is required and regardless of how few employees you have, if an employee protected by the state statute is injured or killed in the course of working for you, you may be legally liable. One claim for a serious employee injury could bankrupt many small businesses. Insurance, through the payment of premiums for workers comp coverage, provides a predictable cost for handling this risk.
Who sells Workers Comp Insurance?
Workers comp insurance is not part of your Businessowners Policy (BOP). It must be purchased as a separate insurance policy.
Each state has its own rules about where employers may buy workers comp insurance. In a few states all employers must buy their workers comp insurance from a state monopoly insurer, known as a state fund. In a number of other states, insurance may be purchased from the state fund or from private insurers. In the states that have them, state funds may serve as an insurer of last resort for businesses that cannot find coverage from a private insurer.
How are premiums set?
Premiums are based on the employer’s industry classification code and payroll. Premiums for the most dangerous enterprises, such as trash hauling or logging, may be much higher than premiums for an accounting firm.
Location has also become a factor in workers comp premiums. Since the terrorist attacks of September 11, 2001, workers compensation insurers have been taking a closer look at their exposures to catastrophes, both natural and man-made. For businesses located in an area at high risk of catastrophe, premiums may be higher, regardless of the nature of the business itself.
Employers with an annual premium above a certain amount are usually eligible for experience rating, which adjusts the premium up or down depending on the claims history of the company relative to other companies in that industry category. Businesses with higher than average claims will pay a higher premium and those with lower claims will generally pay less.
Experience rating is more sensitive to the number of claims (loss frequency) than the dollar value of claims (loss severity). This is because of the insurance industry maxim, “frequency breeds severity.” Insurers know from experience that where more accidents occur, there is a greater likelihood of big losses. A greater number of accidents indicates that overall in working conditions are not as safe as an environment where fewer accidents occur, even if in a given year the few accidents that occurred were more costly.
What are my costs for Workers Comp?
Your costs include insurance premiums, payments made under deductibles and the administrative costs of handling claims and making reports to the state and your insurer.
Understanding Your Workers Comp Policy
Usually a workers comp policy has two parts: "Part One, Workers Compensation" and "Part Two, Employers’ Liability."
Under "Part One", the insurer contracts to pay whatever the state-required amounts of compensation may be. Unlike other types of insurance, workers comp coverage has no ceiling or limit on the policy amount. The insurance company accepts a transfer of the employer’s entire statutory obligation—whatever the employer is legally obligated to pay as a result of the injury.
"Part Two" of the policy provides coverage for an employer who is sued by an employee for work-related bodily injury or illness that isn’t subject to state statutory benefits. It has a monetary limit.
Employers' liability also insures an employer in some other situations. One is so-called “third-party over suits,” where an injured worker files suit against someone other than the employer (a third party) and that third party then seeks to hold the employer responsible. For example, an employee injured while working with a machine might file suit against the manufacturer of the machine. The manufacturer might then sue the employer claiming that the cause of the injury was modifications the employer made to the machine or improper use. Another situation where this liability coverage applies is when the spouse of an injured worker sues the employer for loss of consortium.
In most states you are required to keep records of accidents. You must report work-related accidents to the state workers compensation board and to your insurer within a specified number of days.
Studies suggest that the faster the insurer receives notice of an injury and can initiate medical treatment and benefits, the faster the injured worker recuperates and returns to work. To help get medical treatment to the injured worker faster, some insurers help employers file promptly a "first notice of injury" with the state agency responsible for overseeing the workers compensation system, a step which can trigger the claim process.
Are my employees covered when they work or travel in other states?
Your workers comp policy covers claims made only in the states named in the policy "Declarations." If an employee is injured while working in another state, and that state has benefits more generous than the state(s) named in your policy, the employee could file a workers comp claim in the other state and it would not be covered by your policy.
Factors That Affect Your Premiums
Premiums for workers comp vary among the states. In states where benefits are more generous, premiums for workers comp insurance may be correspondingly greater. In most states, workers comp benefits continue even after the worker begins to collect Social Security and Medicare.
However, benefits are only one part of the equation. In some states with low benefits and costs, premiums may be high due to the inefficiency of the system for awarding benefits. The generally increasing cost of medical care impacts premiums as well. Although states are working to make changes, for the most part, workers comp doesn’t have the types of cost control measures that have been applied to health insurance. Workers comp claimants do not have to pay deductibles. In many states they may visit as many doctors and specialists as they like. There is generally no requirement for doctors to prescribe generic rather than brand name drugs.
Assigned Risk Plans Or Pools
What is a Second Injury Fund?
An assigned risk plan or pool is a means of providing insurance for businesses that may not be able to get workers comp insurance in the private market. High-risk businesses, businesses with a history of many claims and businesses in new industries without a previous industry claims history are the most likely to get insurance through the assigned risk plan.
Typically, the employer or the agent applies to the plan. The application is then assigned to an insurance company that the state has designated to write the policy. Premiums in assigned risk pools often carry a surcharge over the regular premium rate.
Second Injury Funds encourage the hiring of workers who are partly disabled but still able to work. Employers would be reluctant to hire such workers due to the risk they could sustain an injury that would combine with the prior injury or condition to cause a disability. Without second injury funds, the new employer would be liable for the entire cost of the claim. When a partially disabled employee suffers a second injury, part of the cost of the second injury is apportioned to the second injury fund.
What can I do to reduce my Workers Comp premiums?
- Manage Your Risks
- Take Advantage of Saving Opportunities
- Be Sure Your Premium is Correctly Figured
- Raise Your Deductibles
- Try to Avoid Assigned Risk
- Coordinate Disability Programs
Can an employee who has an accident sue me?
Prior to the states’ adoption of the workers compensation system in the first half of the Twentieth Century, injured workers sued their employers after workplace accidents. This was a long, cumbersome and costly process from which the worker might gain nothing if the court failed to find the employer totally responsible for the injury. With so few employers liable for workplace accidents, support for injured workers and the families of deceased workers was a societal problem.
The workers compensation system was adopted to provide injured workers and their dependents timely compensation became regardless of who was at fault for a workplace accident. As part of the compromise that made the employer liable for work-related injury and disease costs regardless of fault, the employee surrendered the right to sue the employer for injuries. For the most part, the system works as intended. Injured workers accept workers comp payments and do not sue. This is why workers comp is referred to as the employee’s “exclusive remedy.”
Nevertheless, there are certainly instances where “exclusive remedy” may not apply and injured workers may sue their employers. Conditions under which such suits are lawful vary among the states.
What injuries are covered?
Injuries employees sustain on the workplace premises or anywhere else while the employee is acting in the “course and scope” of employment are covered if their employer has workers comp insurance. For example, the leading cause of workers comp death claims is traffic accidents that occur when the employee is in a vehicle for work purposes, whether the trip is made in the company’s car or the employee’s own vehicle. Accidents driving to and from work are not covered.
In addition to injuries from accidents, workers comp covers injuries employees may sustain from other events that may occur while they are working, including workplace violence, terrorist attacks and natural disasters.
Workers comp insurance also covers certain illnesses and occupational diseases (defined in the state statutes) contracted as a result of employment. For example, employees who work with toxic chemicals can be made ill by exposure to the chemicals.
Each State Is Different
Workers compensation systems are established by statutes in each state. State laws and court decisions control the program in that state and no two states have exactly the same laws and regulations.
States determine such features as the amount of benefits to which an employee is entitled, what impairments and injuries are covered, how impairments are to be evaluated and how medical care is to be delivered. In addition, states dictate whether workers compensation insurance is provided by state-run agencies and by private insurance companies or by the state alone. States also establish how claims are to be handled, how disputes are resolved and they may devise strategies, such as limits on chiropractic care, to control costs.
To learn about the requirements in Tennessee, visit Tennessee's Workers Compensation Department Web site at http://www.tn.gov/labor-wfd/wcomp.html.
If your business expands to another state, you may have to deal with very different rules in the new state. The discussion here covers the general features of workers compensation programs.
Source: Insurance Information Institute