Workers' Compensation Insurance
Workers‘ compensation insurance provides partial wage replacement and full payment of medical and vocational rehabilitation costs to employees who have a work-related injury or disease. In case of death, benefits are paid to the employee‘s dependents.
Workers’ compensation insurance companies and self-insured employers pay these benefits and collect the premiums.
Who is Required to Have Workers’ Comp Insurance?
Generally all employers are required to have workers‘ compensation insurance and display the name of their insurer in a conspicuous place on a poster provided by the Minnesota Department of Labor and Industry.
Under state law, every employer is liable to pay compensation in every case of personal injury or death arising out of and in the course of employment.
Some key exceptions:
- Businesses without employees are not required to carry the insurance.
- Individually or family run, non-incorporated businesses owned by one person, where any employees are immediate family members.
- Partners in business or farm operations where every employee is a partner or a spouse, parent or child of a partner, regardless of age.
- Closely held corporations, limited liability companies, family farms, casual employees and household workers all have exclusions under certain conditions.
The Minnesota Workers’ Compensation Act provides that insurance coverage may be purchased for many of the above named classes of persons. When coverage is provided, the insured person becomes an “employee” as defined within the statute. When coverage is elected or terminated, written notice must be provided to the insurer and becomes effective the day following receipt of the notice or at a later date requested in the notice.
Employer contracting with an independent contractor may also provide insurance for that person. Employers may only charge the independent contractor a fee for the coverage if the independent contractor elects in writing to be covered and is issued an endorsement setting forth the terms of the coverage, the names of the persons covered, the fee charged and how the fee is calculated.
Employers who do not obtain the required insurance face serious consequences including penalties of up to $1,000 per employee per week and an order prohibiting the employer from employing any person.
What Injuries and Diseases are Covered?
Workers‘ compensation insurance covers injuries and diseases that arise out of and in the course and scope of the employment. A work-related injury or disease is generally a physical condition that is caused, aggravated, precipitated or accelerated by the work or the work environment.
Covered injuries can occur at the work place or outside the work place if the employee is on an assignment or is in transit between different work sites. Employees who experience a tragic event at work that results in post-traumatic stress disorder may also apply for worker’s compensation.
Employees who are hired in Minnesota by a Minnesota employer or generally work here and also work out of state are covered by the Minnesota workers‘ compensation law. If a worker is employed in another state but is injured on the job in Minnesota, he or she can choose to be covered by the Minnesota workers‘ compensation law or by the law in his or her resident state.
Buying Workers’ Comp Insurance
There are several thousand licensed insurance agents who sell workers‘ compensation insurance in Minnesota. It is best to contact several agents to review the business and to quote prices for the insurance.
In Minnesota, workers‘ compensation insurance is sold through open competition, which means insurance companies establish rates and compete for business. All workers‘ compensation policies provide coverage mandated by law. Only the price and quality of service varies, and shopping for insurance can save money. Other factors to consider in choosing a carrier are claims servicing, safety counseling, and the carrier‘s reputation.
Options other than insurance may be available to cover an employer’s workers‘ compensation liability. For example, some large employers or groups of employers are approved by the Department of Commerce to self-insure, which allows them to directly manage their workers‘ compensation claims and contain their costs. Many large employers who are approved to self- insure their risk hire a claims administration company.
Occasionally, an employer is unable to obtain workers‘ compensation insurance on the open market because the business is too small to justify the expense of selling and servicing the account or because of the nature of the risk involved in the business. In this case, the employer would buy the insurance through the Assigned Risk Pool. For more information about this type of plan, contact an insurance agent.
Consultants at our Small Business Assistance Office can help you understand more about workers' compensation insurance. And our network of Small Business Development Centers has experts located in nine main regional offices and several satellite centers statewide.
Our Guide to Starting a Business in Minnesota provides a detailed look at this and other important issues.