Do Employees Pay for Workers Compensation? The Answer

 

Workers Comp Insurance: Who Pays & How It’s Calculated

 

Workers compensation is crucial if you suffer a work-related injury or develop an occupational disease. It offers financial protection (see how much workers comp pays) and covers your medical treatment for as long as you need it.

 

While most employees understand that this type of insurance coverage exists to help them, many people remain unclear about who actually pays the insurance premiums. The answer is straightforward in most cases, but understanding the nuances of workers comp premiums can help both employers and employees better grasp their rights and responsibilities after an occupational injury.

 

The answer to the question of who pays workers compensation insurance premiums is: your employer. 

 

Workers comp coverage is mandatory for most private employers, as well as non-profits and state and local government entities. Employers face severe penalties if they do not have workers compensation insurance when required.

 

 

The Five Ways an Employer Can Obtain Workers Compensation Insurance

 

Employers typically have five ways to provide workers compensation benefits:

 

First, employers can purchase insurance through a state fund. In some states, this fund is the sole provider of workers compensation insurance. In other states, this fund competes with private insurers. Employers in the Commonwealth of Virginia, however, do not have this option available to them. The only state fund for workers comp is the Uninsured Employer’s Fund (UEF).

 

Second, large employers that meet specific financial requirements can request that the Virginia Workers Compensation Commission allow them to self-insure. With this approach, the employer adjusts claims filed by its employees, covers the costs of defending the claim, and pays benefits when ordered by the Commission. Ashley Furniture, Anthem, and American Airlines are examples of self-insured employers in the state of Virginia.

 

Third, two or more employers with a common interest may request that the State Corporation Commission license them as a group self-insurance association (GSIA). Examples of GSIAs in Virginia include the VADA Group Self-Insurance Association, of which many automobile dealerships belong, and the United Contractors of Virginia Group Self-Insurance Association. Other examples include local government group self-insurance pools, such as the Virginia Risk Sharing Association (VRSA) and VAcorp.

 

Fourth, a business can enter into a written agreement with a professional employer organization (PEO). As defined in Virginia Code Section 65.2-101, a PEO “initially employs all or a majority of a client company’s workforce and assumes responsibilities as an employer for all co-employees that are assigned, allocated, or shared by the agreement between the professional employer organization and the client company.” In other words, a business can satisfy its workers compensation insurance requirements by contracting with a PEO that provides coverage.

 

While PEOs are less common than traditional insurance arrangements, my law firm has handled numerous workers compensation claims involving professional employer organizations. For example, some contractors of Dominion Energy use a PEO.

 

Fifth, an employer can purchase workers compensation insurance from a private insurance carrier licensed in their jurisdiction, such as Travelers, The Hartford, Arch Insurance, or Liberty Mutual. The contracted insurer is responsible for compensating you. This method of paying for workers compensation is the most common in Virginia.

 

Why Does the Employer Have to Pay for Workers Comp Coverage?

 

An employer’s obligation to provide coverage or benefits is a fundamental principle of workers compensation systems across the United States, including in Virginia. Your employer bears the entire cost of premiums, and employees do not contribute to this expense through payroll deductions or any other means.

 

This system replaced the old approach where injured workers had to sue their employers and prove negligence – a difficult, expensive process that left many workers without compensation or medical care. Under this compromise, employees waive their right to sue employers for workplace injuries (making workers comp the exclusive remedy for job-related injuries). Employers, in turn, accept responsibility for providing workers compensation benefits set by statute. You can learn more about these specific benefits by clicking these links: temporary total disability, temporary partial disability, permanent partial disability, and workers comp settlement payouts. 

 

Are There Legal Prohibitions on Employee Contributions or Payroll Deductions to Offset the Cost of Workers Compensation Insurance for Employers?

 

Yes.

 

Your employer is breaking the law if it asks you to buy workers compensation insurance coverage or deducts money from your check to cover this expense.

 

For example, Virginia Code Section 65.2-807 makes it unlawful “for any employer to deduct from the wages of any of his employees any part of the cost of insurance as provided for in Section 65.2-801 to insure liability, or to require or permit any of his employees to contribute in any manner toward such cost of insurance.”

 

This law, along with others like it, creates a financial incentive for businesses to maintain safe working conditions and implement effective safety programs.

 

If employees had to contribute to premiums, it would shift part of the responsibility away from employers. And worse, it could discourage injured employees from filing legitimate claims, fearing that the cost of workers compensation insurance would increase with each claim they file.

 

Despite the straightforward nature of this law, I have seen employers try to find a loophole. For example, one employer considered our client an independent contractor at times and an employee at other times. Then, the employer deducted the cost of workers compensation insurance premiums from the 1099 wages paid to the employee, but not the W-2 earnings. We were able to resolve that case successfully.

 

If an employer attempts to pass workers compensation costs to you through wage deductions or any other mechanism, consider reporting the employer to the Virginia Department of Labor and the Workers Compensation Commission.

 

How Workers Compensation Insurance Premiums Are Calculated

 

Determining who pays the premiums is the first step in calculating workers compensation insurance costs. To see what really determines how much an employer pays, you need to look at how insurers price the risk of occupational injuries and illnesses. Several key factors go into it:

 

 

• • Total Annual Payroll: An employer’s premiums are tied to its total payroll because insurers quote premiums as $X per $100 of payroll. Generally, the more employees a company has and the higher their wages, the greater the exposure to occupational injuries, the higher the risk, and the higher the total premiums.

 

• • Industry Classification: Different industries and job types carry different levels of risk. A construction company will pay significantly higher rates than an accounting firm because construction workers face a higher risk of more frequent and severe injuries. Insurance companies and state rating bureaus assign classification codes to different types of work, each with its own base rate.

 

• • Claims History: Employers with better safety records and fewer workers compensation claims generally pay lower premiums through an experience modification rate (EMR or mod). This rating compares a company’s actual claims history to the expected claims for businesses of similar size and type. A good safety record can result in substantial premium discounts, while a poor record leads to surcharges.

 

• • What This Means for You: Employers with high premium costs due to poor safety records may be more resistant to workers comp claims, as each claim can further increase their rates. This is why the law prohibits employers from passing costs to employees. It ensures you can file legitimate claims without fear of retaliation.

 

• • State Requirements: Premium rates and calculation methods vary significantly from state to state. Each state, including Virginia, has its own workers compensation system with unique rules. Some states have monopolistic state funds, where all employers must purchase coverage from the state, while others allow private insurance markets.

 

Bottom Line

 

There’s no debate about who pays for workers compensation. Employers do. And it should remain that way because of the control employers have over their workplaces.

 

This fundamental principle protects you from having to pay for protection against workplace injuries. And it provides incentives to employers to eliminate unsafe working conditions that devastate families and cost Americans billions of dollars annually.

 

Have Questions About Workers Compensation? We Can Help

 

If you have additional questions about workers compensation insurance premiums or other workers comp issues, check out my free informational hub with answers to more than 200 workers comp questions. 

 

Need Legal Help with a Potential Virginia Workers Comp Claim? Contact Corey Pollard Today 

 

If you or a family member suffered a serious workplace injury, then now is the time to assess your legal options and whether you have a viable path forward to secure workers compensation benefits. Contact Corey Pollard Law today to schedule a no-cost, confidential consultation.

 

During the consultation, we’ll address your questions, review what happened, and discuss your legal options. You can reach us at (804) 251-1620. We work on a contingency fee basis—you pay no fees unless and until you win compensation.