What is Workers' Compensation?

  Workers' Compensation is a no-fault insurance system that  provides wage replacement, medical, and rehabilitation benefits to employees that are injured at work.   Being no-fault, it requires the employer to be responsible for the payment of benefits irre spective of who or what caused or contributed to an injury or ill ness that is connected with a job.

Why was Workers' Compensation developed?

Before this system was developed, employers could be sued for negligence .  The employer's only defense was to prove that the injured employee or a co-worker was at least partially at fault, or that the employee "assumed the risk" of potential injury by accepting the job.  This process made employers vulnerable to lengthy lawsuits where damage awards could reach millions of dol lars .  Also, injured workers would not receive payments to sup port themselves and their families or pay for their medical care during often lengthy legal proceedings.

Under Michigan 's current law, Workers' Compensation is an "exclusive remedy."  Employees may not go outside of the workers' compensation system to sue their employer unless the employer intended or was certain that the injury would occur.

In return for this almost automatic liability, workers are entitled only to certain wage loss benefits, medical costs, and rehabilitation services.  No recoveries are allowed for pain and suffering, loss of enjoyment of life, or other damages which a jury might award.

Who must have Workers' Compensation insurance coverage?

All employers must have workers' compensation coverage if they either regularly employ three or more workers at one time, or they have regularly employed at least one worker for 35 hours or more per week for 13 weeks or longer during the preceding 52 weeks.

Other employers may voluntarily choose to buy workers' compensation coverage.   All public employers must have coverage.  By having coverage, the employer is protected against being sued by an employee injured on the job.

When a person is self-employed and not organized as a part nership or corporation, he/she is not covered by the Workers' Compensation Disability Act.  The employees of a sole proprietor ship are covered by the Act.  Certain family members of an employer may be excluded from coverage if an exclusion form (BWC 337) is filed with the Department of Labor and Economic Growth.   An exclusion form may also be filed if all employees are partners or corporate officers owning 10% or more of the stock.

How do coverage requirements apply to contractors and  subcontractors ?

A confusing situation often arises when determining the requirements covering contractors, subcontractors, and sole proprietors.   Contractors are responsible for paying workers' compensation benefits to any injured employees of an uninsured subcontractor.   Contractors can protect themselves from responsibility by obtaining from the subcontractor, documentation of their coverage; or by getting a copy of the exclusion form which  the subcontractor has filed.  When a subcontractor is a sole proprietor, a sworn statement that the sole proprietorship has no employees provides additional documentation.

What is the difference between a subcontractor and an employee?

There is a set of criteria generally used to determine whether a person is an employee or subcontractor.  These criteria are used to establish whether a separate business exists rather than an employer-employee relationship.  To determine whether a separate business exists, look for the following factors or documents:

1. The subcontractor's federal identification number;
2. A copy of an "assumed name certificate" filed with the county;
3. A copy of the subcontractor's "articles of incorporation" or partnership papers;
4. The subcontractor has received an IRS 1099 form in lieu of a W2 form;
5. The subcontractor maintains his/her own separate place of business that is physically distinct from your place of business;
6. The subcontractor furnishes all of the materials and equipment necessary to perform the job tasks;
7. A copy of a written contract that spells out the relationship between the general contractor and subcontractor;
8. The subcontractor can realize a profit or suffer a loss as a result of the services rendered; and
9. The subcontractor has the right to hire or fire its employees without securing permission from a general contractor.

What would indicate that someone holds herself/himself out to the public as a subcontractor?

1. The subcontractor is listed in the yellow pages and/or advertises in the newspapers, trade journals, on TV, on radio, or on the Internet
2. A list of other general contractors or individuals who have recently hired the services of the subcontractor;
3. The subcontractor performs specific services for prices that are agreed upon in advance and the subcontractor pays expenses incurred in the performance of those services;
4. The subcontractor does not primarily depend upon the payments from one general contractor for their livelihood.

Sometimes people are unaware that they are in business for themselves.   The person they think of as their employer thinks of them not as an employee, but as a subcontractor.  This effectively makes the person a sole proprietorship with no other employees.  As a small business, this person then assumes many additional responsi bilities .  Something to think about!

I guess I need Workers' Compensation coverage; how do I get it quickly?

Quickly is not the way to get Workers' Compensation Insurance coverage.   It is not unusual for the lowest cost quote to be half of the highest; and service by the insurer varies as much as price.  The Accident Fund Company , a wholly owned subsidiary of Blue Cross and Blue Shield of Michigan , currently has the largest market share of any Workers' Compensation insurer in Michigan.    The Workers' Compensation Agency Insurance Listing will provide you with more than 225 companies selling coverage in Michigan.

You should allow yourself at least two or three months to shop  around because it will take time for insurers to evaluate your business.  Ask your agent to solicit quotes from at least a half- dozen insurers.  If you feel your agent is not getting a represen tative sample of the market, talk with another agent.  Ask about the quality and timeliness of service provided by the various insurers.   Check with other businesses.

Large employers may have the option of self-insuring.  Small  businesses have a variation of this available through group self- insurance .  There are about 35 group self-insurance funds in Michigan .  They are available to members through organizations such as the Michigan Retailers Association .  These funds have been very effective in saving money for their members.  To self-insure, either individually or as a group of employers, all applicants must first apply for approval to the Self-Insured Programs Division , Department of Labor and Economic Growth, at 517.322.1868.

For further information about Workers' Compensation Insurance,
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