Workers’ compensation is an insurance system, mutually beneficial to both employees and their employers. It serves two basic purposes of providing benefits to employees who suffer a work related injury or illness and to protect employers from costly litigation over claims that are from work related injuries and illnesses. Michigan’s workers’ compensation program is regarded as one of the strongest in the nation.
Benefits to the injured employee can include appropriate medical treatment as well as Partial replacement of lost income in cases where an employee is unable to work for more than seven days (or death benefits paid to dependent survivors in the event of a fatal injury or illness); and vocational rehabilitation so the injured worker can return to gainful employment as quickly as possible.
Workers’ compensation is the oldest form of no-fault insurance. First established in Germany in 1856 and adopted soon after by England and most of Western Europe, workers’ compensation insurance was enacted in Michigan in 1912. By 1920, all but eight of the other states had passed workers’ compensation laws.
Workers’ compensation is “no fault” in the sense that benefits are paid without regard to who or what caused or contributed to an injury or illness. Before this insurance system was established, an employer could be sued for negligence and could only defend himself/herself against such lawsuits by proving that the employee was at least partially at fault, that a fellow employee contributed to the injury, or that the employee assumed the risk of potential injury by accepting the job.
Workers’ compensation is an employee’s “exclusive remedy” to offset the paid and lost time of a work-related injury or illness. In exchange for prompt payment of wage-loss benefits and medical treatment, employees give up the right to sue their employers for damages.
From the employer’s perspective, workers’ compensation provides protection against the potentially ruinous cost of lengthy lawsuits filed by injured employees. Damages for such suits could reach into the millions of dollars. Employers who may be exempt may find that voluntarily providing workers’ compensation benefits is the best way to protect workers and the business against the costs of work-related injuries.
Employers forfeit the protections of the workers’ compensation laws when they deliberately cause injury to an employee (referred to as an “intentional tort”). An employer is considered to have intended an injury if he/she knew that an injury was “certain to occur and willfully disregarded that knowledge,” according to the law.
All private employers must have workers’ compensation coverage if they regularly employ three or more workers at one time; or during the preceding 52 weeks, they have regularly employed at least one worker for 35 hours or more per week for 13 weeks or longer. All public employers must have coverage. Any other employer can voluntarily choose to buy workers’ compensation coverage. By doing so, the employer is protected against being sued in the event a worker is injured on the job.
Michigan has special provisions that apply to contractors, subcontractors and sole proprietors. Details on these provisions may be found if you contact Michigan Department of Labor and Economic Growth, Workers’ Compensation Agency, Compliance and Employers Records Division at (517) 322-1195
To set the rates, workers’ compensation insurance companies divide business activities into more than 400 different classifications, based on the principal duties involved. Each classification has its own rate of coverage, so the overall rate for a given policy will be a combination of rates for all employees in all classifications. All insurers use basically the same set of classification categories and occupations descriptions.
The employer and his/her insurance agent together determine the classifications that fit the specific business. Each employer must pay close attention to this aspect of the policy since the classifications used to calculate the premium are so critical to determining the ultimate cost of the policy.
The following suggestions are offered always insist that your workforce be accurately and fairly classified. Look at the list of classifications (available from your agent). Read the descriptions. Make sure the classifications “fit” your employees. Many carriers are willing to develop special class codes to reflect changes in technology and the workplace. Check with your carrier to see if they have or are willing to develop new codes. Finally, get copies of the codes you are using for your records. Reading through the classifications list will only take a few minutes but could save thousands of dollars on the cost of the premium.
Once the classifications are settled, the company and its agent estimate what the class-by-class payroll will be during the policy
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