 Personal finance PowerPoint presentation, workers' compensation overview, prepare to get financially fit by practicing personal finance. Insurance is part of our overall risk mitigation strategy where we follow the adage of major twice cut once put in a formal process in place, looking something like set the goals, develop a plan to reach them, put the plan in action, review the results and repeat the process periodically. Most of this information can be found at Investopedia Workers' Compensation, which you can find online. Take a look at the references, resources, continue your research from there. This by Julia Kagan, updated February 6, 2022. In prior presentations, we've been looking at different kinds of insurance. Now we're working on the workers' compensation in alignment and conjunction with that overall discussion. What is workers' compensation? Workers' compensation, commonly referred to as, quote, workers' comp, end quote, is a government mandated program that provides benefits to workers who become injured or ill on the job or as a result of the job. So in other words, it's kind of a type of insurance here that's going to be mitigating risk for the workers, the kind of insurance being that if we can't work, if we come disabled in some way, then we're going to be losing the income in that event and we're going to have some kind of basically insurance or risk mitigation related to that. Now, obviously the workers' compensation is a little bit restrictive because the workers' compensation is designed to come into play if there was some kind of injury generally on the job. So if you went out skiing or something and skiing isn't part of your job and you got injured, you might not be able to work still, but that might not be covered by the workers' compensation in that case. And part of the rationale for workers' compensation when you put the workers' compensation in place possibly would be to stop kind of lawsuits or an attempt to kind of stop lawsuits for people that are kind of injured on the job and have like basically the workers' compensation possibly being able to kick in, to have some kind of mitigation in that process. But in essence, that's the idea. So it is effectively a disability insurance program for workers. So again, disability insurance, working in a similar fashion as other kinds of insurance, you might compare it to something like liability insurance, property insurance or life insurance where we're trying to mitigate some big event that hopefully doesn't happen in the future. We don't want it to happen, but if it did, it could be financially devastating, therefore we're going to be insuring against it. Something like a home burning down or something like someone suing us for millions of dollars or something like us dying prematurely. Here we're going to say that we can't work and therefore we're going to have that loss in the revenue that we would have otherwise had. Now you would think that you could then think, well, is this going to be a short-term thing or a long-term thing? Notice from a personal kind of planning standpoint, if it's a short-term thing, it's more likely it's something that you would like to be in a position that you can self-insure against, basically by saving up money that you can self-insure against a short-term problem if you had an income flow that is stopped for a while and then possibly have the long-term insurance in the event of a more catastrophic event happening that would stop your ability to work for a more significant period of time. But in any case, and the U.S. workers' compensation is handled primarily by the individual states, so it's going to be run on a state-by-state thing. You might have different rules and regulations related to the workers' comp. The required benefits vary greatly state-by-state. Texas is the only state that does not require employers to maintain workers' compensation insurance. Understanding workers' compensation, workers' compensation benefits may include partial wage replacement for the period during which the employee cannot work. So obviously that's going to be the point here, they can't work and therefore it's trying to mitigate the insurance or the burden of that by giving some portion of the workers' comp. The benefits may also include reimbursement for health care services and occupational therapy. Most workers' compensation programs are paid for by private insurers from premiums paid by the individual employers. Each state has a workers' compensation board, a state agency that oversees the program and intervenes in disputes. There are federal workers' compensation programs that cover federal employees, so if you actually work for the federal government then of course usually the federal government benefits, it used to be our classically had more benefits than you would think on the private sector, although that could be changing from state to state depending on where you are at. Longshore and harbor workers and the energy employees. Another federal program, the black lung program, handles death and disability benefits for coal miners and their dependents. So we got the workers' compensation benefits. Requirements for workers' compensation vary from state to state so it's going to be different depending on the state that you're in, so you want to take that into consideration with your overall risk mitigation strategy and not all employees are covered in some states. So some states may not have all employees covered and you would think that for smaller employers possibly there could be differences to the rules and there could be differences in rules you would think based on the risk factors that might be involved, for example. Some states, for example, exclude small businesses from the mandate for coverage and that would kind of make sense because obviously small businesses can't handle so much of these kind of regulatory burdens than a larger basically business can and so often times they're going to carve out if this business is under a certain threshold possibly by counting by number of employees or something like that you might not be subject to as many requirements such as the workers' comp. So others have different requirements for various industries. So clearly if you're in industries that are more dangerous then maybe you can see an argument for more necessity of some kind of workers' compensation. In that case, for example, the National Federation of Independent Businesses the NFIB maintains a summary of each state's workers' compensation requirements. So you can take a look at that if you want to get more detailed state by state. Salary replacement. The salary replacement paid and employee under workers' compensation is typically less than the person's full salary pay. So if you're on workers' comp usually it's not going to give you the full pay so you'd still want to be able to be planning for your own self-insurance if you're kind of dependent on the workers' comp. For example, again you would like to have some savings to kind of self-insure to be able to withstand a few months at least hopefully without income coming in which would be great and or at the very least to be able to withstand the lower level of income that you might have if you had some kind of work disability. So the most generous programs pay about two-thirds of the person's gross salary. Workers' compensation benefits are not usually taxable at the state or federal levels compensating for much of the lost income. So in other words, the money goes further if you're not going to have it counted as tax income. So income for taxes is bad because that means if you have an income tax then the government's going to take part of it. So if you can get some compensation that isn't income then that would typically be better. It would go further because you wouldn't have the government taking part of it. Taxes may be due to recipients who also have income from the social security disability or supplemental security income programs. Healthcare costs reimbursement and survivor benefits. Most compensation plans offer coverage of medical expenses only related to injuries incurred as a direct result of employment. For example, a construction worker could claim compensation for an injury suffered in a fall from scaffolding but not for an injury incurred while driving to the job site. So it might obviously, some of the insurance might be basically lined up to what it is you're actually doing. If you're scaffolding, that's clearly a part of the job. If you're driving to somewhere, you might call that a commute. That's not exactly the big risk factor of scaffolding. But in any case, in other situations, workers can receive the equivalent of six pay while they are on medical leave. If an employee dies as a result of work-related incident, workers' compensation makes payments to the workers' dependents. Recipients waive the right to sue. So here's kind of the argument for workers' compensation. The argument kind of being, if you didn't have workers' compensation, it's more likely that the employees, if they get injured or something like that, will sue. And it's likely if you're in a place where lawsuits are quite common, you can end up with a lot of lawsuits, possibly even over fairly minor kind of things that you can argue against. And a lot of times, the lawsuits from the company's perspective, you end up with a situation, and we've seen this quite commonly when you see lawsuits waged against like people that have a lot of money, for example, and the person that with a lot of money might just say, okay, I'll just pay you. And then we immediately jump to the conclusion, well, that's because he's guilty. But it may not be. They may just be saying, it's not worth my time to go through the litigation process and pay my lawyers and waste my time and energy going through this process. Just paying them is probably cheaper. You have that same kind of thing with corporations. It's even worse in some states, like if you're in California, for example, just because you're a corporation, you were thought of as kind of an evil corporation. So you're kind of on the defensive already. Even if you're not at fault, it's kind of hard to whoever's making the claim usually has the sympathy involved on that side, even if it's so in any case, that the thought would be that you're going to try to do the workers' compensation or the to kind of pay off. And that's going to lower the number of lawsuits. Does that actually work? I don't know, I'm not sure. But in any case, by agreeing to receive workers' compensation, workers give up the right to sue their employee for negligence. This compensation bargain is intended to protect both workers and employees. Workers are giving up further resource in exchange for guaranteed compensation while employers consent to a degree of liability while avoiding the potentially greater cost of a negligence lawsuit. So and again, the negligence lawsuit. The cost of it is not just the claim amount that they would have to pay out. The cost of it is litigating. The lawyers, the lawyers are the ones that win in the lawsuits. So special considerations, a claim for workers' compensation may be disputed by an employee. In that case, the workers' compensation board may be asked to resolve the dispute. Disputes can arise over whether the employer is actually liable for an injury or illness. Workers' compensation payments are also susceptible to insurance fraud. So notice, and this is again the argument that's kind of against us. The idea would be, well, if we just pay out the people that have the workers' compensation, they won't sue and that'll make everybody better off because we'll just pay off. But then of course, the question would be, well, if you make it too lenient that anybody can just claim workers' compensation for anything, you're going to end up with fraud, right? Which happens a lot. So you could have a lot of kind of fraudulent things, which again, the point is that they might not be as looked into as if they were doing a lawsuit because it's costly to kind of look into them. But obviously if you don't try to mitigate the amount of fraud and workers' compensation, there will be more of the frauds you would expect. So an employee may falsely report that an injury was sustained on the job, exaggerate the severity of an injury or invent one. So in fact, the National Insurance Crime Board asserts that there are, quote, organized criminal conspiracies or crooked physicians, attorneys, and patients who submit false claims to medical insurance companies for workers' compensation and other benefits. Clearly, that's the case. So the independent contractor exception, in most states, only regular employees are eligible for workers' compensation, not independent contractors. But now you've got this issue of, and this is a big one for the government as well. If you haven't experienced this in where you're working, the question would be, well, am I working as an employee or am I working as an independent contractor? From a government standpoint, they kind of like to get people to pushed into working as an employee because they have more leverage on the employer as to regulate certain things like withholdings for income taxes and be able to put people under some of these more laws and regulations for the employees, as opposed to if they're just a contractor, because a contractor would be someone that they're just doing business when they're providing a service. They're not an employee and you wouldn't have as much burden of these requirements as an employee or would. And so you could see the interplay between those two things can get quite complex. So that was one of the main points of contention in the debate over California ballot measure that sought to extend employee benefits to drivers of ride-sharing apps like Uber and Lyft. And this is a really interesting application of this because if you're a driver at something like Uber and Lyft, then you're basically a contractor oftentimes at that point. And that means that you kind of have your own business, whereas the Uber and the Lyft services are really connecting two people together, they're not really like an employee or in that sense, they're really just like a tool to connect two people together. If you think about it that way, you think about them as contractors, if they were to make them employees, then you might think that the employees would benefit and they might at first at least from getting some of these other benefits, but it would also be way more burdensome to the whole system, right, to this gig economy, which would most likely lessen the amount of Uber and Lyft workers and you wouldn't be your own employees at that point. So you could see there's pros and cons to that whole debate. So like the so-called gig economy, the issue of workers' compensation and other benefits for contract workers isn't going away. So this is going to be a fight that it certainly will continue. In 2020, about 17 million, and by the way, if you read anything on the IRS website and stuff like that, they're always mentioning the gig economy and talking about, you know, what the gig economy needs to do and this and that's clearly on their radar. So in 2020, about 17 million Americans were working full-time as contractors and more than 34 million workers worked part-time or occasionally as contractors. Type of workers' compensation and the U.S. workers' compensation rules are handled by the individual states. The U.S. Department of Labor houses an office of workers' compensation programs, but it is responsible only for coverage of federal employees, longshoremen and harbor workers, energy employees and coal miners. So the lack of federal standards for workers' compensation has resulted in extremely varied policies for the same kinds of injuries from state to state. And that's actually, you can argue, kind of a good thing because then we can actually, this is the point of having different states that have different rules, we can start to look at these different rules for workers' compensation and these arguments about, well, if you have workers' compensation, does that lower the lawsuits? Is it less costly? Is it making people more better off? Or is it making more fraudulent claims, where the fraudulent claims are outstripping the gains that you're getting from the reduction in the lawsuits? It's forcing someone to be a contractor, to be an employee versus a contractor. A good thing is that increasing, say, the gig economy and the strength of workers and the people working in it, are they better off or are they actually worse off given the fact that the costs related to it result in less people working in the gig economy and having less control over their own affairs? And so it's kind of interesting to look at these from a state-by-state standpoint, ask those questions, make up your own mind and act accordingly. So identical injuries can receive radically different kinds of compensation depending on where a worker resides. A paper by the Occupational Safety and Health Administration flatly calls workers' compensation a, quote, broken system, end quote, and estimates that 50% of the cost of workplace injuries and illness are borne by individuals who suffer them. Low wage and immigrant workers often don't even apply for benefits. So workers' compensation coverage a versus coverage b, there are two types of workers' compensation coverage called coverage a, coverage b, coverage a, what's that? Includes all the state mandated benefits that an injured or ill employee is entitled to receive from the employer's insurance. It covers salary replacements, payments, as well as medical care, rehabilitation, and death benefits if as necessary. All the states except Texas have such benefits although they vary widely from state to state and many states exclude some employees from eligibility. Coverage b then pays benefits that exceed the minimums required by coverage a, and they usually are paid only as the result of successful lawsuit brought by the employee for negligence or other miscontact by the employer. Workers to accept workers' compensation generally waive the right to sue their employers, agree to a, quote, no fault end quote contract in so doing. However, state legislation and court rulings in a number of states have restored the employee's right to sue in various strictly defined circumstances. So in other words, the whole point of it again was to say, okay, we're gonna try to stop all these lawsuits because everybody keeps suing the companies and it's costing money so maybe we'll do the workers' compensation but then the workers' compensation might lead to people, you know, kind of making false claims on the one hand and then if it really was something that was worth suing for, you can see that the state would want them to actually let them sue so they might actually loosen the rules for the lawsuits which kind of negates the point of the whole thing in the first place because now you've still got possibly lawsuits in certain situations and you've got this whole thing in place. So thus, an employer may opt to purchase a policy that combines coverage A and coverage B. Who pays workers' compensation insurance premiums? The employer pays the workers' compensation insurance premiums and notice you can think of this technically and you can think of it really economically so obviously if you think about your withholdings that come out of your paycheck, for example, payroll taxes, for example, come out of your, so half of them or some of them come out of your payroll checks and that would include social security, Medicare, federal income tax are withheld from you, so your salary minus the taxes that you owe gets towards your net salary and some of the payroll taxes, for example, social security and Medicare on the employer side are paid by the employer. Workers' compensation doesn't come out of the actual wages, they're paid by the employer. However, in reality, if you really think about, okay, what's really the impact on people's actual wages, you might argue that obviously if the employer has to pay a higher cost for the employee even though that money isn't going to the employee in form of cash, it's going somewhere, right? So it's going to have an impact on how much they're going to be able to pay someone, you would expect because it's still a cost to them. So from an economic standpoint, it's still going to factor into the negotiation on how much someone is going to earn, you would think. So there is no payroll deduction as for social security benefits, the employer is required by law to pay workers' compensation benefits as established by individual state laws. So how much does workers' compensation cost? The cost of workers' compensation insurance varies by state as do the mandated benefits. There also are different rates depending on whether the employees covered are performing low risk or high risk jobs. So it's going to be dependent on the state and basically your industry, for example, so that gets a little bit confusing as well when you're trying to figure out like the payroll kind of situation and workers' compensation related to it. So the fees for the insurance are based on the company's payroll numbers just as an example. In California, workers' compensation cost an average of $0.40 for every $100 in payroll for low risk workers and $33.57 for high risk workers. In Florida, the average is $0.26 per $100 for low risk jobs and $19.40 for high risk jobs. So you can see a substantial difference there in Florida and California, right? So New York, the average is $0.07 per $100 for low risk jobs and $29.93 per $100 for high risk jobs. How do you apply for workers' compensation? The rules for applying for workers' compensation vary by state. In general, a worker with a job-related injury or illness should write down the details of the injury or illness in detail with photos and the names of witnesses when possible. Report the injury or illness to your employer. The employer should take it from there filing your claim with the insurer. So you can follow through with the employer's insurance company to make sure a claim was filed. If your claim is denied, you can appeal the decision with your state's workers' compensation board. Who is exempt from workers' compensation? Generally only salaried employees are eligible for workers' compensation, not contractors or freelancers. Beyond that, every state writes its own rules. For example, Arkansas specifically excludes farm laborers and real estate agents from eligibility. Idaho excludes domestic workers, Louisiana excludes musicians and crop-dusting airplane crew members as an interesting musician. The bottom line, what's the bottom line? Every tax except Texas, every state except Texas requires employers to provide workers' compensation coverage to at least some of their employees. The states write the rules so there are many exceptions and exemptions. Contractors and freelancers are rarely covered and many states exclude certain professionals from the mandate or otherwise limit the scope of the benefits. Most states have online sites that can help you determine if you're covered by workers' compensation insurance. So obviously if you've got questions on your own individual state, you can have to dig into it with your own individual state checking online for that help and assistance. For example, the state of Florida's Division of Workers' Compensation has information on its program, links to the necessary forms and a database that can tell you whether your employer has coverage.