Workers Compensation
Workers compensation is required by law in Connecticut and almost every state the moment you have your first W-2 employee. It's not a question of whether you carry it. It's a question of which carrier and how the audit will land.
What it is.
Workers comp pays medical bills and a portion of lost wages when an employee is injured on the job, regardless of fault. In exchange, the employee gives up the right to sue the employer for that injury. It's a no-fault system, codified state by state.
The premium is calculated as a rate (per $100 of payroll) multiplied by your annual payroll, modified by your experience modifier (e-mod) which reflects your historical claim pattern compared to similar businesses. Three things move the price: payroll, classification codes, and your e-mod.
Below is what the policy actually pays for, how the annual audit works, and how to keep the experience modifier from running away from you.
Required for any business with W-2 employees in Connecticut, New York, New Jersey, and almost every other state. Sole proprietors and partners can usually exclude themselves but must include any employees from day one.
What it covers.
Each policy is a stack of named coverages. Required parts are mandated by state law. Recommended parts are what we put on most policies. Optional parts depend on your situation.
Medical Benefits
Pays 100% of medical expenses related to work-related injury or illness. No deductible, no copay for the employee. Includes hospital, surgery, prescriptions, physical therapy, and medical equipment.
Indemnity (Lost Wages)
Pays a portion of the employee's wages while they're unable to work. Usually around 60% to 67% of average weekly wage, capped at the state maximum. Tax-free to the employee.
Permanent Partial Disability
Lump-sum or scheduled payments for permanent loss of function (loss of a finger, hearing loss, partial loss of vision) when the employee can return to work but with a permanent impairment.
Permanent Total Disability
Long-term wage replacement when the injury prevents the employee from returning to ANY work. Continues until retirement age or death depending on the state.
Vocational Rehabilitation
Job retraining and placement services when an injured worker can't return to their original occupation but could work in a different role. State rules vary.
Death Benefits
Payments to the surviving spouse and dependents if a work-related injury or illness causes death. Includes funeral expenses up to the state cap.
Employer's Liability (Part Two)
Defends the business against employee lawsuits that fall outside the workers comp exclusive remedy (third-party-over actions, dual-capacity claims, intentional acts). Usually $500,000 to $1M limits.
Other States Coverage
Provides coverage when employees temporarily work in states not listed on the policy. Critical for any business with employees who travel between states.
Pay-As-You-Go Billing
Premium calculated and billed each pay period based on actual payroll instead of an estimate up front. Smooths cash flow and minimizes audit surprises. Worth asking about.
When it kicks in.
Real situations we see in the agency. The point is to show how each layer of coverage maps to actual life, not to scare you.
Warehouse worker hurts back lifting
Doctor visit, MRI, physical therapy, 3 weeks out of work. WC pays 100% of medical bills directly to providers. Indemnity pays 60% to 67% of weekly wages during the recovery period. Employee returns with no permanent restriction.
Construction worker falls from scaffolding
Hospital admission, surgery, 6 months recovery, permanent partial impairment to one leg. WC pays all medical bills, full indemnity during recovery, then a permanent partial disability lump sum based on the impairment rating.
Restaurant cook burns hand on grill
ER visit, follow-up appointments, two weeks out. Medical paid 100%, indemnity for the lost shifts.
Office worker carpal tunnel from years at keyboard
Cumulative trauma claims (repetitive stress injuries) are covered. Carrier may dispute causation, which is why having clear injury reporting and a panel of providers matters. AJ helps clients set this up.
Truck driver loses hearing over time
Occupational hearing loss is a covered illness in most states. Treated similarly to a permanent partial disability claim. Audiology and assistive devices covered by medical benefits.
Key terms.
Plain-English definitions. The vocabulary insurance carriers assume you already know.
- 01Class Code
- A 4-digit code (NCCI or state-specific) that classifies the work being done. Each code has its own rate. A clerical office (8810) is dramatically cheaper than a roofer (5551). Misclassifying employees is a top audit issue.
- 02Experience Modifier (E-Mod)
- A multiplier (1.00 = average, lower = better, higher = worse) based on your 3-year claim history compared to similar businesses. A 0.85 e-mod saves 15% on premium. A 1.30 e-mod adds 30%. The single biggest thing you can manage long-term.
- 03Premium Audit
- Annual review where the carrier reconciles estimated payroll against actual payroll. If you over-estimated, you get a refund. If you under-estimated, you owe additional premium. Common surprise for growing businesses.
- 04Exclusive Remedy
- The legal trade-off at the heart of WC. Employees can't sue the employer for work injuries beyond what WC pays. The narrow exceptions (intentional acts, third-party claims) are what Employer's Liability covers.
- 05Officer / Owner Election
- Sole props, partners, and officers can usually elect to be included or excluded from the policy. Excluding saves premium but means no coverage for the owner if THEY get hurt on the job. Often the right call when paired with adequate disability insurance.
- 06Drug-Free Workplace Discount
- Many states offer a premium credit (5% to 10%) for documented drug-free workplace programs. Often missed by small employers because the documentation requirements feel like a hassle. Worth the paperwork.
Common questions.
Questions clients ask before they get on the phone with AJ. If yours isn’t here, just call.
Yes in Connecticut and most states from day one. The fines for not carrying it are large and can stack daily. The exception is sole proprietors with no employees, who are not required to carry it on themselves but often choose to.
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