Workers' Compensation 101: What You Need to Know

For most small business owners, dealing with workers' compensation costs is a huge headache.

Why is the system so hard to navigate? While some federal workers' comp statutes exist, for the most part, workers' compensation laws vary depending on your state. In the most recent Problems and Priorities study (1.3 MB, PDF) conducted by the National Federation of Independent Business, workers' compensation costs was sited as one of the top concerns for small business owners.

Familiarizing yourself with the workers' comp laws in your state can help you find affordable coverage for your employees.

Here are a few things you should know:

• Most states simply require business owners to purchase workers' compensation through an insurance agency of their choice.
• In North Dakota, Ohio, Puerto Rico, the U.S. Virgin Islands, Washington, West Virginia and Wyoming, employers are required to purchase worker's compensation insurance through the state.
• Generally, sole proprietorships or partner-based businesses aren't required to purchase workers' compensation insurance unless they hire an employee who is not part owner.
• Since there is no uniform set of rules between states, the National Council on Compensation Insurance writes rules for premium information processing, as well as policy forms. NCCI is a not-for-profit that can provide analyses of industry trends in workers' compensation costs, rate and loss recommendations, analyses of proposed legislation regarding regulations and benefits, and more. For information that can help you decipher your state's workers' compensation laws, visit https://www.ncci.com/nccimain/pages/default.aspx.

Even though workers' compensation laws vary from state to state, there are terms that every small business owner needs to know:

• Average Daily Wage: The calculation of an employee's average daily earnings, which is used to determine entitlement to wage loss benefits.
• Permanent Partial Disability (PPD): PPD benefits are payable, in most jurisdictions, to an employee who has sustained a permanent, but not complete, disability.
• Permanent Total Disability (PTD): PTD benefits are available if an injured employee is permanently and totally disabled from work.
• Social Security Disability Benefits (SSDI): SSDI benefits are payable to disabled individuals through the Social Security Administration. Many state workers' compensation statutes have specific provisions which dictate whether an injured employee may receive both workers' compensation benefits and SSDI benefits at the same time.
• Temporary Partial Disability (TPD): TPD benefits are payable when an injured employee is able to work despite their injury. The benefits are available only for a limited period of time, in recognition of the fact that the employee will recover fully enough in the future that they will be able to resume employment without a wage loss.
• Temporary Total Disability (TTD): TTD benefits are available to employees whose injuries leave them totally unable to work for a period of time. The benefits are no longer payable when the "temporary" disability clears and the employee is able to resume working.
• Vocational Rehabilitation (VR): Vocational rehabilitation generally includes a melting pot of services that are offered to injured employees to help them return to work following a work injury. VR may involve transferable skills assessments, educational courses, job search assistance, and many other vocational aids. Vocational rehabilitation is sometimes also referred to as "occupational rehabilitation."

For a complete listing of workers' compensation terms that you need to know, visit http://smallbusiness.findlaw.com/workers-compensation-employers/be13_8workerscomp.html.

NFIB Benefits: Members can save on worker's compensation costs in several states.