Vermont employers are required to obtain workers’ compensation insurance coverage for their employees. There are very few exceptions to this requirement. Employer size, non-profit status, non-monetary compensation or other such factors are all irrelevant to whether the employer must obtain coverage. This information sheet will address the few employment situations in which workers’ compensation coverage is not required. It will also provide information concerning insurance coverage and what to expect for cost.
“No-Fault” Insurance Compromise
Workers’ compensation was developed as a compromise system to benefit both employers and employees. It provides the injured worker with limited benefits in an expeditious manner. It provides the employer limited liability and contained benefits, limited by statute. Workers’ compensation is also recognized as a no-fault system. Workers’ compensation benefits are provided to an injured worker regardless of whether the worker or the employer was negligent or at fault for the work accident.
Mandatory Coverage – Few Exceptions
Vermont mandates that all employers with employees in Vermont maintain workers’ compensation insurance coverage. The following limited employment situations do not require coverage:
- Casual employment that is not for the purpose of the employers trade or business
- Amateur sports
- Agriculture or farm work for which aggregate payroll is less than $2,000/year
- Family member dwelling in the family home
- Work performed in and about the home (for the benefit of the home)
- Sole proprietor or partner owner of an unincorporated business
- Real estate broker or real estate sales person on commission
Independent Contractor or Employee?
Special questions arise over whether an individual worker is an independent contractor or an employee, and thus, whether the employer must obtain coverage for that worker. The Workers’ Compensation Division applies two tests to determine the worker’s status:
- Right to Control Test.
- Nature of the Business Test.
If the worker is performing work controlled by or integral to the employer’s business then an employment relationship likely exists and the employer should have workers’ compensation insurance coverage. More information is available at: http://www.state.vt.us/labind/wcomp/wcindependentcontractor.htm
Coverage Not Required for Volunteers
An employee, by definition refers to: “A person who has entered into the employment of, or works under contract of service for an employer.” In order to be an “employee”, the worker must expect or receive wages or some other benefit in lieu of wages. This means that a person who is a pure volunteer and who receives no money or other compensation is not an employee. If a worker receives room, board or some other benefit for work performed, this would be considered an employment relationship.
Exclusions for Corporate Officers and LLC Managers
Corporations and Limited Liability Corporations (LLC’s) must maintain workers’ compensation insurance coverage. Corporations, however, are allowed to file paperwork to exclude corporate officers from their company’s workers’ compensation insurance policy. The necessary paperwork is a Form 29 – Application for Exclusion from the Provisions of the Vermont Workers’ Compensation Policy. The officers of a corporation that may be excluded include the president, vice president, secretary, clerk and treasurer. Supporting documentation must be provided. The individual must be a designated officer of record with the Secretary of State or other documentation must be provided indicating such election.
Selecting Insurance Coverage
An employer may obtain workers’ compensation insurance coverage in the same manner that they obtain any other insurance coverage – from an insurance agent. Workers’ compensation insurance coverage is not available through the State of Vermont Workers’ Compensation Division. When shopping for insurance coverage an employer may choose to place all of their insurance needs (i.e. General Liability and Workers’ Compensation) with one agent or carrier. Employers should be aware that not all insurance agents or carriers are alike. When shopping for insurance coverage it may be helpful to ask educated questions concerning costs and “claims handling.” The carrier should, for example, be able to explain:
- their standard procedure when a claim is filed
- number of claims handled by one claims adjuster
- explain what ongoing contact is provided the employer during the life a claim
- how the employer can minimize their risk
Cost of Insurance
Nearly half of Vermont employers pay less than $1000 per year for workers’ compensation insurance coverage. The average net cost of such insurance for all Vermont employers is 4.26% of payroll. The cost of an employer’s workers’ compensation insurance may vary based upon the following:
- if they can obtain coverage in the Voluntary Market (vs. Assigned Risk Market)
- size of business; payroll
- newness of business
- type of work performed
- safety record
Vermont has an open competition insurance market in which different insurance carriers can offer workers’ compensation insurance to a given employer at a different rate. Very small employers, new employers or employers with poor safety records may not be able to locate coverage in the voluntary market and may be placed into the Assigned Risk Market.
The type of work performed is another significant cost consideration. For workers’ compensation insurance purposes, work is classified into over 600 “job classifications”. An insurance carrier will likely charge an employer more to cover more hazardous job classifications, due to higher anticipated “loss-costs”.
The employer’s safety record is another significant factor in determining insurance cost. An employer with a good safety record with a good experience rating may be perceived as a better risk than another employer with a poor safety record and a high experience rating. An employer with a good safety record may find they have more choices when selecting insurance coverage.
The “Voluntary Market”
Not all employers can obtain workers’ compensation insurance coverage in the voluntary market. As indicated above, a new or small employer or an employer with a poor safety record may not be able to find coverage in the voluntary market. In the event coverage is not available in the voluntary market, the employer must still obtain workers’ compensation insurance coverage through the Assigned Risk Market.
Assigned Risk Market
Employers who must obtain coverage in the Assigned Risk Market will likely pay more for their insurance coverage than the same coverage in the voluntary market. “Assigned risk” also means assigned placement. The employer may have no choice or limited choice over their insurance carrier or options regarding their coverage. Also, an employer with a poor safety record or poor claims history may be charged more for their insurance.
Insurance Worth The Cost
The costs of insurance may seem high to some employers but it is well worth the expense. The cost of a workers’ compensation claim varies tremendously depending upon the seriousness of the work injury. One claim, however, may run into tens of thousands of dollars, significantly more than the cost of insurance. Employers may not recognize their savings until after a claim is filed and the expenses of that claim paid for by their insurance carrier.
Do’s and Don’ts
Employers should be aware that there are laws and rules concerning workers’ compensation that they are expected to follow. Here are just a few guidelines for employers to be aware of:
- An employer cannot charge employee(s) or deduct from their pay the cost of workers’ compensation insurance coverage.
- An employer must maintain workers’ compensation insurance.
- An employer may not seek to obtain a lower insurance premium through any willfully misrepresentation.
Note: An employer may be subject to an Administrative Penalty and monetary fine if charged with any of the above, after an opportunity for hearing and adjudication