Most state laws require that the Workers Compensation and Employers Liability Insurance Policy and the various endorsements and forms used with it be filed with their respective insurance departments for approval. The National Council on Compensation Insurance, Inc. (NCCI) files standard forms on behalf of its members and subscribers in many of those states.
Two different types of jurisdictions generally use NCCI manuals, rates, and forms. The first are competitive rating jurisdictions, where each insurance company files its rates and rating variations. The other are administered pricing jurisdictions, where NCCI files the rates and rules of the manual on behalf of and for the benefit of all participating carriers.
TYPES OF ELIGIBLE EMPLOYEES
Each state establishes its own workers compensation laws. This results in significant differences in the types of employees eligible for coverage from one state to another. However, workers compensation laws in most states do not cover domestic workers, casual laborers, and agricultural workers.
In nearly all other cases, every employee must be covered to some extent by a state’s workers compensation law. The laws of each state must be reviewed carefully to determine the coverage options available to an employer.
DOMESTIC WORKERS AND FARM EMPLOYEES
As stated above, the area that presents the greatest differences in eligibility between state workers compensation laws is domestic workers and farm employees. Coverage for these employees is mandatory in a few states, subject to certain minimums or criteria based on length of service or dollar amount of payroll. In most states, such employees are exempt and coverage for them by the employer is entirely voluntary.
In the majority of states where these employees may be added to the policy, it is done by adding the appropriate classification or classifications, payroll, and premium charges. Other ways to provide this coverage is by adding Employers Liability to homeowners, farmowners, ranchowners, or personal liability policies. Workers compensation cannot be “added” to these policies because Workers Compensation and Employers Liability is a separate policy.
LEASED AND TEMPORARY EMPLOYEES
Different states define leased and temporary employees differently and the classifications that apply. The way these employees are defined determines the coverage available and who has the responsibility to provide the benefits. One area to thoroughly investigate and understand is the description of short-term employees from temporary help services. These employees are treated the same as leased employees in some states but not in others and all parties must thoroughly evaluate and understand the way they are treated.
PARTNERS, SOLE PROPRIETORS, AND MEMBERS/MANAGERS OF LIMITED LIABILITY COMPANIES
As a general rule, partners, sole proprietors, and members/managers of limited liability companies are not considered or treated as employees and the state’s workers compensation law does not cover them. Some states permit one or more of these categories to elect or ‘opt in’ to coverage under the state workers compensation law by being endorsed onto the policy. Depending on the state law, they may also have to report their intent to be covered to a state agency.
Some state laws automatically cover partners and sole proprietors unless they elect to ‘opt out.’ Partners and sole proprietors who want to ‘opt out’ from coverage are endorsed off the policy. Depending on the state and its law, they may also have to report their intent to not be covered to a state agency.
A fixed or flat payroll amount is usually charged for each partner, sole proprietor, or member/manager in states where this coverage is available. Some states treat members/managers as corporate officers and apply the corporate officer payroll limitations to them.
The payroll for such persons is assigned to the classification they apply to, based on the manual rules. The various state laws that apply to these parties differ significantly and there are no simple assumptions as to whether a particular classification is included, excluded, or treated differently or by exception in a given state. The named insured and the insurance professional must both carefully investigate this area to determine what may or may not be done in each state.
Another area where states are different is in the availability, amounts, and types of deductibles allowed. Some states do not allow deductibles at all. Others offer only low deductible options, such as $100 up to as much as $10,000. The options section in the state’s manual has the details. The way the deductible is applied must also be thoroughly investigated and understood. The insurance company is usually required to pay the entire amount of loss and the named insured employer reimburses it up to the amount of the deductible.