Workers' compensation and Justworks
This article is intended to convey the basics of workers’ comp. If you have questions about a specific policy or claim, you should contact a lawyer or your workers’ comp insurance provider.
What is workers’ compensation insurance?
Workers’ compensation insurance (commonly known as workers’ comp) is provided to employees whose injuries or illness arise out of their employment. In addition, an employee's beneficiaries may also receive benefits if death results from an on-the-job activity.
There are two categories of benefits: indemnity benefits and medical benefits. If a worker suffers from a work-related injury, indemnity benefits compensate the worker for loss of income or earning capacity. Medical benefits are paid to either cure the injury or to relieve its effects if it is incurable. Unlike health insurance policies, there are no limits to reasonable medical benefits under workers’ comp. You can read more about it here.
Is workers’ comp required?
Workers’ comp is required for all employees co-employed by Justworks in all states. Once you sign up with Justworks, you’ll pay workers’ comp on each salaried payment to all of your employees.
If your business is required to have workers’ comp coverage and does not, you could be liable for fines and penalties. States routinely audit businesses to ensure that appropriate coverage is in force.
Check out our Workers' Compensation Insurance Primer to learn about what workers' comp covers, which businesses are required to have it, what the benefits are, how premiums are calculated, and more.
ND, OH, WA, and WY have “monopolistic” workers’ comp policies
In these four states, workers’ comp policies are issued by an agency of the state government. In Washington, premiums are charged directly as payroll tax, although you are still required to apply for coverage.
What is covered by workers' comp?
On a basic level, workers' comp covers injuries employees sustain on the workplace premises or anywhere else (e.g., if traveling for work-related purposes) while acting in the course and scope of their employment. 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 contracted as a result of employment. For example, an employee who works with toxic chemicals and becomes ill from exposure to those chemicals would likely receive benefits.
There are two categories of benefits: indemnity benefits and medical benefits. If a worker suffers from a work-related injury, indemnity benefits compensate the worker for loss of income or earning capacity. Medical benefits are paid to either cure the injury/illness or to relieve its effects if it is incurable. Unlike health insurance policies, there are no limits to reasonable medical benefits under workers’ comp.
Workers' comp does not cover injuries sustained from accidents while driving to and from work. It also won’t necessarily cover injuries that, while sustained at the workplace, are not within the course and scope of employment. For example, if you’re a graphic designer, and you bring your unicycle to the office and ride it down the stairs, your claim may be denied since the injury is unrelated to your job.
I work in an office, do I still need workers' comp?
Offices aren’t typically very dangerous, so why does the state require workers’ comp insurance for office workers? Well, even office employees have a substantial number of claims (for example, WA had ~839 claims under the clerical 8810 class code in 2016)1. However, since office jobs are obviously less dangerous than most other jobs, the premiums for employees doing office work are lower than most other class codes.
How is the cost of workers' comp calculated?
Workers’ comp premiums are based on risk. The more likely an employee is to get hurt, the higher your premium will be. This rate will actually be a percentage of your payroll rather than a fixed cost. This percentage can range anywhere from 0.1% to 30%, depending on a whole bunch of factors.
It's certainly not fair for a software company to pay the same premiums for workers’ comp as a construction company. Therefore, each state has a huge list of job classifications, with associated base workers' comp rates, that are based on what a worker is actually, physically doing for their job. Each worker in a company is assigned a code, called a “class code,” from this list. There may also be modifiers that act on the base rates. These modifiers have many things factored into them, including the workers' comp history of a particular company, how long that company has been in business, where it is located, and more.
HERE'S AN EXAMPLE OF A WORKERS' COMP PREMIUM CALCULATION
You have an employee who is classified as a code 8810 (clerical worker) in New York state. The base rate through Bob’s Insurance Company for that NY code is $0.27, meaning that it will cost $0.27 for every $100 in payroll, or 0.27%. Then the carrier underwrites your company with a funding rate of 1.037, sometimes called an Experience Modification Factor, or E-MOD. Your base rate is now $0.27 x 1.037 = $0.28. Then, say you pay that employee a $2000 salary payment. You will pay ($2000/$100) x $0.28 = $5.60 in premiums for that payroll. This is just an example of how the calculation can work—each insurance company can operate differently.
What is “workers’ comp minimum”?
This applies for unpaid owners. Since they aren't on a salary there is still a minimum that must be paid each month for workers’ comp. This rate varies from state to state.
How does workers' comp work when you're using a PEO?
First, a Professional Employer Organization (PEO) is a co-employer. Among other things, that means PEOs take on certain employer rights, responsibilities, and risks. Typically, a PEO will be the employer of record for tax, payroll and administration purposes, while the client company will be the employer of record for direction purposes. Because the PEO is the employer of record for administration (including payroll), the co-employed workers need to be covered under the PEO’s workers’ comp policy. As mentioned earlier: if you have workers, you need workers’ comp. If the PEO co-employs workers, the PEO needs workers’ comp for them.
How does workers' comp work when you're using Justworks.
Justworks is a traditional PEO. As a PEO, we are the employer of record for administration purposes of all employees on our platform, so they all must be on our workers’ comp policy. That is a requirement of working with Justworks. It also means you don't need to deal with it! Every time you make a payment through the system, we automatically calculate your workers' comp premiums and display them on your invoices. If you have a claim, it will be on our master policy and we’ll help you sort everything out. We'll also take care the annual renewals. Justworks has no fees or charges other than your quoted base rate, including setup and cancellation fees!
What if I already have workers' comp insurance?
To work with Justworks, you would need to cancel your existing policy and get covered through us. We require all companies on our platform to be covered through our workers’ comp policy. Since it is illegal to have multiple policies covering the same employee, companies on our platform need to cancel their existing policy as well.
Do I always need to apply?
Yes. Before joining the platform you’ll need to apply for a new workers’ comp policy. Every company that comes onto our platform must be approved by Justworks’ insurance carrier. All applications are processed by us and by the carrier to make sure that the correct codes are assigned and that risk is managed. It is possible that we may need to deny a company workers’ comp coverage. This is simply because our policy has limits on the types of companies we can work with. For example, our policy would not be able to cover a construction company.
If we are unable to have a company on our workers’ comp, we unfortunately can’t provide our other services to that company either. However, as we grow, we’ll keep expanding the list of industries we can work with.
Justworks can provide proof of coverage for customers
Because your Justworks plan includes workers’ comp coverage, we are able to provide a certificate of insurance (COI) as necessary. Contact Justworks support to request the COI. Please note, it can take up to one month for us to provide proper documentation.
Helpful to know: workers’ comp is issued for a company, not a person
Even if your business has only unpaid owners and partners but no employees, your business may be required to have workers’ comp. You should consult your attorney or insurance broker for how this affects you and your business.
Does my policy last forever?
Workers’ comp policies renew annually. Justworks policies renew in June of each year.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.