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> WORKERS’ COMPENSATION INSURANCE IN MAINE
AN EMPLOYERS’ GUIDE TO ...WORKERS’ COMPENSATION INSURANCE IN MAINE
A Publication of
WHAT IS WORKERS’ COMPENSATION?Workers’ Compensation provides for benefits for occupational injuries or disease suffered by an employee, regardless of fault. The benefits include payment of medical services and lost wages, subject to a limit set by law. Workers’ compensation is the exclusive remedy for the coverage of work related injuries by the employer.
Do I Need Workers' Compensation Insurance CoverageThe law requires almost all public and private employers to have workers’
compensation coverage. The law defines employers as “private
employers, public employers, water districts, other quasi-public corporations,
municipal school committees, school union committees, and design professionals.” Employers Who are Not Required to Have Workers’ Compensation Coverage
Sole ProprietorA sole proprietor without employees is not required to have coverage under the Workers’ Compensation Act. A sole proprietor does not need to fill out waiver forms to be exempt from coverage. A sole proprietor with employees is required to carry workers’ compensation for those employees. Corporate ExemptionA bona fide owner of at least 20% of the outstanding voting stock of a corporation may waive in writing all the benefits provided by workers’ compensation for themselves. Family Member ExclusionThe parent, spouse, or child of a sole proprietor, partner, or bona fide owner of 20% of the voting stock may waive in writing all the benefits provided by workers’ compensation. Limited Liability Companies"Owners" of limited liability companies are not required to be covered by workers’ compensation insurance and do not need to fill out waiver forms. The parent, spouse, or child of a member of a limited liability company who is employed by that limited liability company may waive in writing all benefits provided by workers' compensation for themselves. Charitable, Religious, Educational, or Other Nonprofit CorporationsDuly elected or appointed executive officers of charitable, religious, educational or other nonprofit corporations are not covered by workers' compensation insurance unless they are specifically included among those for whom workers' compensation insurance has been obtained. Contractors/SubcontractorsAn independent contractor is a person who performs services for another under contract, but who is not under the essential control of the other person while performing those services. If you are not certain whether someone working for you is an employee or an independent contractor, you can ask the person you believe to be an independent contractor to provide written proof, in the form of a certificate of coverage, that they have workers' compensation coverage for their employees OR you and the contractor can submit an application for Pre-determination of independent Contractor Status to Establish Rebuttable Presumption (form WCB-261) to the Maine Workers' Compensation Board. If the application is approved, you will receive a rebuttable presumption that the contractor is an independent contractor. If you don't take these steps, your insurer might consider the employees of the independent contractor to be your employees and take their payroll into account when calculating your premium. An exception: A landowner who contracts for wood harvesting may be liable for benefits to employees of the contractor if a certification of insurance is not provided by the contractor. To receive an Application for Predetermination of Independent Contractor Status to Establish Rebuttable Presumption (WCB-261) or to obtain an Application for Waiver (WCB-2C) contact: The Coverage Unit How Do I Buy Workers’ Compensation Coverage?As a business owner you have several ways to secure workers’ compensation insurance. You can obtain it through the following ways:
Insurance MarketCurrently the insurance market is competitive for employers who have had either no losses or very few losses and who have a good attitude about implementing and maintaining safety programs. Other insurance, such as general liability, business owners, or commercial package policies do not cover injuries to employees. Most health insurance policies specifically exclude injuries to workers’ while they are working for their employer. Besides legal requirements, buying a workers’ compensation policy can be one of the best benefits an employer can buy for both themselves and their employees. A first time business owner with no record of claims experience, some smaller businesses, high risk enterprises, and business owners with accident frequency or severity problems, sometimes have difficulty obtaining workers’ compensation coverage. Maine Employers’ Mutual Insurance Company (MEMIC) allows these types of entities to obtain coverage. MEMIC is required to provide workers’ compensation coverage to employers who cannot obtain insurance elsewhere. MEMIC specializes in loss control, risk management, returning employees to work, and assisting employers with their workers’ compensation safety programs. This high level of service helps employers become aware of steps they can take to reduce lost time accidents and overall claims cost. MEMIC also insures in the regular (voluntary) market competing with other insurers.
Self-InsuranceIn Maine, employers who qualify may also self-insure their workers’ compensation exposure on either an individual or group basis. Self-insurance gives the employer more control over their workers’ compensation program. However, the employer is also more at risk for costs because a self-insured employer is responsible for all workers’ compensation losses as long as the employee is unable to work or continues to need medical treatment. Individual self-insurance is normally advisable only for large employers. Group Self-Insurance An alternative to commercial insurance is group self-insurance. This method allows smaller entities to band together and agree to pay for each other’s losses. Group self insurance is regulated by the Bureau of Insurance and members pay a premium to the group. If the experience of the group is good, rates can be lower and surplus funds can be returned. If the experience of the group is not good, the rates are higher and additional assessments may have to be paid. Members of the group are responsible for the claims of all member employers. Corporate Self-Insurance For a corporation to individually self-insure its workers’ compensation risk, approval is required from the Self-Insurance Division of the Maine Bureau of Insurance. To qualify for approval, an employer must be financially sound and must post enough security to guarantee the payment of claims and administrative expenses. For more information and self-insurance application forms, contact: The Maine Bureau of Insurance
Shopping TipsOver 240 companies are now authorized to sell workers’ compensation insurance in Maine. Cost and services vary from company to company. The following shopping tips may help you to explore what is available in the marketplace to meet your particular needs.
How Is the Premium Calculated?The cost of workers’ compensation insurance is based on the hazards associated with the type of jobs related to the employers’ business classification. Each business has a major classification or governing class that identifies it as a certain type of business. General Rule: the business is classified, not the individual jobs within the business. For example, a manufacturing operation has one major governing class assigned to the type of manufacturing that is done e.g., die casting, clock manufacturing, or lime manufacturing. Each of these types of manufacturing has different and unique characteristics associated with the manufacturing process. These classifications take into account the varied duties of employees in the respective manufacturing types. Other contracting classifications classify each job separately. A contractor may have carpentry, concrete construction, masonry, and roofing rated separately on their policy. However, to rate each job separately, payroll must be tracked for each class. There are exceptions to the general rule which classifies the business. These are called standard exception classifications and are common to many business types. In this situation the individual employee and not the business is classified. The standard exception classifications are: clerical office - 8810; drafting employees - 8810; salespersons, collectors, or messengers outside - 8742; drivers, chauffeurs and their helpers - 7380. These positions are not related to the specific business of the employer as they are common to all employers. Workers' compensation insurance costs are determined by multiplying a rate that is assigned to a specific classification for every $100 of payroll to the payroll in that classification. Manual premium is computed based on the total remuneration paid or payable by the employer for services of individuals who could receive workers’ compensation benefits for work-related injuries based on the policy.
Factors Which Affect Premium CalculationRemuneration Remuneration includes wages, salaries, commissions, bonuses, pay for holidays, vacations, periods of sickness, piecework, profit sharing, incentive plans, and payment or allowance for hand tools or power tools. To calculate the premium, remuneration excludes tips, gratuities, payments by an employer to group insurance or group pension plans for employees, dismissal or severance payments, and expense reimbursements to employees if an employer’s records prove that the expense was incurred as a valid business expense. Overtime Pay Overtime pay is additional pay for hours worked over an employee’s normal work week. The extra pay for overtime (but not the standard rate pay) is excluded from the payroll on which the premium is computed. However, the employer’s books and records must be maintained to show overtime pay separately by employee and in summary by classification. Rates Rates vary by classification and by insurer. Many insurers have more than one rate level. The lower rates are used for employers with good safety plans and better claims experience than other employers. Experience Modification Experience rating is a procedure that modifies an employer’s premium to reflect expected experience based on the employers prior workers’ compensation claim history. This procedure compares an employer’s loss history to what was "expected" for that type of business based on the reported payrolls. The experience rating calculation gives more weight to the frequency of injuries, but does not overly penalize an employer for the seriousness of one particular claim. A risk qualifies for ecperience rating if it develops premium of at least $9,000 within the most recent 24 months of the experience period. If it has more than the 24 months experience, the risk must develop an average annual premium of at least $4,500 to qualify. Note: The previous description of what is included and excluded in the calculation of your premium is not all inclusive. When you have questions, it is important to contact your insurance producer for help.
HIGH AND LOW MANUAL RATES FOR SELECTED CLASSIFICATIONSThe following chart shows a sampling of the premium charged per $100 of payroll for specific classifications. The rates are reflective of MEMIC's standard rate and the lowest available rate effective January 1, 2008 for the top classifications in terms of payroll (most recent policy period available). Note: The industry low rate is the lowest rate of any company in the top 10 insurance groups (in terms of written premium) having at least $1,000,000 in written premium in 2006. Employers must meet the underwriting criteria in order to be eligible for the low rate. Rates Effective January 1, 2008
*Lowest rate of any carrier in the top 10 groups with at least $1 million in written premium in 2006. Managing Your Workers’ Compensation CostsYou can control some of your workers’ compensation costs. Good management practices are essential to keep costs as low as possible. Management Practices Loss control and safety can only be successful if it is part of the management structure and responsibilities of the organization. Managing losses is key to controlling insurance costs.
Loss RunsLoss runs are reports generated by your insurance company that establish a record of your job-related accidents and claims. They are available free of charge from your insurer. The loss runs are your record of account activity. These are similar to a bank statement or an account balance from a creditor. The insurer may send loss runs to its producer instead of sending them to the employer.
Premium AuditsWorkers’ compensation premium is calculated based on the wages actually paid in each job classification. Since an accurate calculation cannot be made until after the end of the policy year, premiums are initially collected based on an estimate. After the policy year closes, every insured employer’s payroll is audited to determine the actual premium amount owed. The employer will then receive either an additional bill or a refund. The premium audit process is similar to the income tax collection process. Payments are made or withheld on an estimated basis during the year with a final reconciliation after the year ends. Employers whose payroll increases during a policy year should expect a bill for additional premium after the audit. When an audit is completed by the insurance company, the employer is entitled to a copy of the audit worksheets. The insurance company must complete the audit and bill the insured for any additional premium due within 120 days after the policy expiration date, provided the employer has cooperated with the insurer to allow timely access to the required information. The employer should request the information when the audit is complete. Examine the information immediately to make sure it agrees with your records. It is critical that you express any concerns about the audit immediately to the insurance company. Audit bills are premiums that are due the insurer like any other premium bill. Failure to either pay the audit, or agree to pay the audit can cause the audit bill to either be turned over to a collection agency or may cause a report to be filed with a credit reporting agency. The disputed amount could show up unfavorably on a credit report and you may lose your eligibility for continued workers’ compensation coverage until payment is made. Many insurance companies will conduct a mid-term audit and correct any deficiencies that might occur in the estimated payroll figures. This keeps bills accurate and avoids large, unexpected audit adjustments.
THE WORKERS’ COMPENSATION POLICYThe policy contains six numbered parts and is a contract between the employer and the insurer. The first three parts identify the coverage. PART ONE - Workers’ Compensation Insurance In this part of the contract the insurer agrees to promptly pay benefits mandated by the Maine workers’ compensation law. Coverage in other states is limited to incidental exposure unless the Policy Information Page (also called the Declaration Page), which is located at the very beginning of the policy lists specific states where claims are also covered. Part One:
PART TWO - Employers’ Liability Insurance Protects the employer from liability imposed by law that is not compensable under the workers’ compensation policy. This coverage is similar to other forms of liability coverage in other policies. See the policy for specific information on this coverage. PART THREE - Other States Insurance Provides coverage in states not listed on the Information Page of the policy provided that you give 30 days notice to the insurer after the work begins. PART FOUR - Insured’s Duties If Injury Occurs This part of the policy explains the insureds’ obligations under the policy when an accident occurs. PART FIVE - Premium Presents the seven conditions that relate to the development of premium. PART SIX - Conditions This part of the policy governs the different relationships between the insured and the insurer. It consists of the following five provisions:
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