What is workers’ compensation?

Workers’ compensation insurance (also referred to as industrial insurance) helps protect you and your employees in cases of injuries and illnesses that occur due to workplace conditions. Workers’ compensation insurance helps ensure that employees that become ill or injured as a result of their work still receive medical benefits and some wages while they are in recovery. Except in cases of gross negligence, workers’ compensation policies also protect employers from litigation from injured or ill employees.

All private employers in Washington State must purchase workers’ compensation insurance policies to cover their employees.

What does workers’ compensation insurance cover?

Workers’ compensation insurance ensures that employees that become ill or injured on the job receive the necessary medical services needed to help them recover and return to work. Employees that must miss work due to a work-related injury or illness are also eligible to receive temporary financial compensation to cover lost wages.

Labor and Industries must review and approve an employee’s workers’ compensation claim before benefits will be disbursed. For example, an employee who has become injured on the job and needs medical rehabilitation must submit a claim and then receive the approval from Labor and Industries in order to have their medical bills paid for through the Washington State Fund.

Benefit or ProgramDescription
Medical services

Pays for medical services, including, but not limited to necessary:

  • Hospital stays
  • Doctors visitsss
  • Medical procedures

Recurring medical services must be routed through an in-network, approved medical provider.

Travel expense reimbursementCovers some pre-approved necessary travel expenses fo obtaining medical care.
Wage replacement benefitsProvides injured employees that cannot immediately return to work with a percentage of their average, weekly wages.
Stay-at-Work programProvides financial incentives to compensate employers that bring injured employees back to the workplace on light-duty work.
Vocational rehabilitationHelps retrain employees that cannot return to their previous vocation due to an injury that resulted from their previous line-of-work.
Permanent partial disability awardsProvides financial support to employees that have become disabled as a result of a workplace-caused illness or injury.
Pension awardsProvides a pension to employees that have become permanently disabled.
Survivor benefitsProvides financial compensation to the family of an employee that has died as a result of a workplace injury or illness.
Structured settlement agreementsEnables injured employees and Labor and Industries to settle workers’ compensation claims.

In most cases, employers are also protected from being sued by an employee that has been injured or become ill as a result of their employment.

Buying workers’ compensation insurance in Washington State

Workers’ compensation insurance coverage is mandatory in Washington State. Employers in Washington State purchase workers’ compensation insurance directly from the Washington State Department of Labor and Industries. Some employers may be able to self-insure their workers’ compensation policies in Washington State, provided that they meet state-mandated requirements for financial and administrative requirements (a minimum of $25 million in business assets and an actively managed workers’ compensation program). Most small-to-medium-sized businesses in Washington State, as a result, will be best served by insuring through Labor and Industries’ Washington State Fund.

What you should know about workers’ compensation in Washington State

  • Is your business required to carry workers’ compensation insurance?

    The majority of businesses in Washington State must purchase or provide workers’ compensation insurance. Some organizations, such as sole proprietorships and LLCs that are comprised of only the company members, are not required to carry workers’ compensation insurance. Section 51.12.020 of the Revised Code of Washington State (RCW) details exemptions for the insurance mandate.

  • Where can you buy workers’ compensation insurance?

    To purchase workers’ compensation insurance in Washington State, you must open an account with Labor and Industries by submitting a business license application. This application includes the relevant information that Labor and Industries requires to determine whether your business is required to carry workers’ compensation coverage. You may submit a business license application through the Washington State Business Licensing Service at BLS.dor.wa.gov.

    If your business initially has no employees, you are likely not required to carry workers’ compensation insurance. However, before you hire your first employee, you must refile your business license application to indicate that you are hiring.

    The Department of Labor and Industries assigns an account manager to every employer in the Washington State Fund. Your account manager will guide you through the process of enrolling in the workers’ compensation coverage through the Labor and Industries website and also with other requirements for notifying your employees about your insurance coverage and safety programs.s

How much does workers’ compensation insurance cost?

Washington State uses business risk classification codes to set the base price of a business’ workers’ compensation policy. The codes, approximately 300 in total, refer to different lines of work, such as roofing, machining, and food service. Each code includes a value that corresponds to the level of risk that the State of Washington predicts it is taking on by insuring a new business.

For example, an employee working at a commercial construction company is more likely to suffer a potentially serious workplace injury than someone who works as an interior house painter.

Outside of the risk classification for your business, the number and frequency of workplace accidents will also affect the cost of your workers’ compensation insurance policy in Washington State. The Department of Labor and Industries uses a business’ experience period to evaluate injury and illness claims that might affect a company’s insurance premiums.

An experience period is a time range of three years (excluding the most recent year), used to determine the number of workers’ compensation claims and the costs of those claims for a business. These values are then compared to the expected values for a business of a similar classification. This deviation value, referred to as the experience factor, may directly affect the base price of your insurance premium. The experience period is a rolling 3 year window, restarting each fiscal year (July), and an employer’s premium prices are re-evaluated each year by determining the business’ experience factor.

Note A workers’ compensation claim will affect your insurance rate for 3 years. Employers can verify their current experience factor on the Labor and Industries website.

How are workers’ compensation insurance premiums collected?

The State of Washington sets its workers’ compensation rates for employees by splitting costs among four components. While employers are responsible for obtaining and maintaining workers’ compensation insurance through the Washington State Fund, employees may be required by their employer to pay some portion of the insurance premium.

Fund or ProgramPremium Paid ByDescription
Accident FundEmployer

Pays non-medical claims:

  • Survivor and disability benefits
  • Lost wage replacement
Medical-AidEmployer and employeesPays employee’s medical claims.
Stay-at-Work programEmployer and employeesProvides partial reimbursement to employers in cases where employees return to light-duty work.
Supplemental-Pension fundEmployer and employeesProvides injured workers on extended disability with cost-of-living increases.

As an employer, you may choose whether to require your employees to pay a portion of the Medical-Aid, Stay-at-Work, and Supplemental-Pension premiums. By state law, employees cannot be required to pay more than 50% of these premiums. Some employers opt to pay the premiums themselves and do not deduct these costs from their employee’s pay.

When you pay your workers’ compensation premiums, the Department of Labor and Industries collects them into the Washington State Fund, a pool that is used for paying compensation claims for employees that have become ill or injured as a result of their work. The Fund does not have any other source of income aside from the premiums, and all workers’ compensation claims and settlements are paid for from this fund.

What if you don’t get workers’ compensation coverage?

Workers’ compensation insurance is mandatory in Washington State. As a result, any employer that is found to have falsified information on their business license application to avoid paying into the Washington State Fund will be directly held accountable and may be subject to penalties. The Revised Code of Washington details the penalties that may be applied to employers that do not comply with workers’ compensation requirements.

References:

  • http://www.lni.wa.gov/ClaimsIns/Insurance/Learn/default.asp