The Workers Compensation System in the United States
The Workers Compensation System in the United States of America was formed in the state governments over the course of the first half of the 20th century. Wisconsin was the first state to enact legislation in 1911 and Mississippi was the last state to enact workers comp laws in 1948. The systems were developed in reaction to the robber baron and depression era of the 1920’s and 1930’s. During this time period big businesses became extremely powerful, especially in the northeast and across the industrial rust belt of the midwest. The power of many businesses kept wages low and working conditions poor. As a reaction to these conditions many groups of employees began to organize and form unions. Out of this movement came the workers compensation system we have today. According to historians and most within the industry, the workers compensation system is the ‘Exclusive Remedy’. Here are four aspects all business owners should know about how the workers compensation system was developed, how it benefits their business, and how to best control your business to manage the workers compensation system effectively.
How did the Workers Compensation System Develop?
Shortly after his term in office (1909), President Theodore Roosevelt wrote an article that included a part about a female factory worker named Sarah Kinsley. Sarah lost her hand after it was crashed in a cogwheel accident. She suffered this injury while working in a factory. Sarah actually sued the company for negligence in order to recover medical bills and lost wages. Sarah had brought the lack of safety features to the attention of the foreman of the factory where she worked. Even though she brought this to their attention and the business did nothing about the hazard, the courts still ruled in favor of the employer under the ‘assumption of the risk’ defense. This left Sarah and her family with nothing. Roosevelt used the article to bring awareness to the need for an effective workers compensation system in the United States. Not long after this article Many states began to enact legislation that became the workers compensation system we have today.
In 1908 President Taft signed the first legislation requiring mandatory employer coverage for employees working in multi-state commerce. In addition to this federal law, over the next 40 years states enacted specific programs and laws to deal with injured employees. This is where the evolution of the workers compensation system took place. Wisconsin was the first state to establish a formal workers comp program in 1911 and Mississippi was the last state to enact workers compensation legislation in 1949.
Prior to the implementation of the workers compensation system within the United States, employees who were injured on the job had very few places for recourse when their employer acts in a negligent way. Prior to the ‘Exclusive Remedy’ the only recourse an employee had was to sue the employer for damages under civil or tort law. In addition to having to sue their employer, the burden of proof was on the employee to show malice or neglect. Most courts ruled in favor of the employer and left employees on their own to cover lost wages and medical costs.
How does the Workers Compensation System benefit a business?
A business benefits from the workers compensation system by not having to face legal recourse for injuries that occur as a part of normal business operations. The business is reimbursed for the medical costs and some lost wages to be paid to the injured employee. The policy will also pay some legal costs up to the limits of the policy for lawsuits filed by injured workers. The claims by the injured worker do not have to be just and they do not have to result in a guilty plea against the business to rack up an enormous cost to the business. Costs may include hiring a lawyer and all court costs. It may also include the costs to hire a public relations company to help repair the businesses damaged image. In addition the owners and leaders of the business may have to spend time in court defending the business. That is time not spent working on the profitablility of the business.
Now the key part of the ‘Exclusive Remedy’ is normal business operations. If a business is found to be negligent, the workers compensation policy will not protect the business. Especially if the actions the leaders of the business took are against the law. What determines normal business operations. In a court of law there are typically industry experts that have an appropriate level of experience and education within the industry you operate in. If they determine the actions of your business were reasonable to keep the employee the business will more than likely not be held liable. Even if you are not held liable, it may cost the business an enormous sum to prove this to be fact.
How does the Workers Compensation System benefit Employees?
Employees Benefit from the Workers Compensation system, because they can go to work confidently knowing that if they are injured on the job they will be compensated in the form of some lost wages (usually 60%), and most medical costs while they are hurt and not able to work. One great aspect of the workers compensation system is that benefits are provided for the employee regardless of who was at fault for the injury. Many injuries occur simply as a realistic fact of doing the work that is required for businesses to operate. In this case, it is not important the fault of the injury. The employee is able to recoup some lost wages and all medical costs while they are out of work because of an injury that occurred on the job.
How can a Business manage the Workers Compensation System?
Preventing injuries should start during the hiring process. No matter what industry a business operates in, there should be some questions during the hiring and on-boarding process that should help the hiring manager determine if an employee is at risk for injuring themselves on the job. If the employee is at risk the company should determine if hiring the employee is appropriate. If the leadership of the business does decide to hire the employee, the business should do everything it can to help the employee address the issue in a safe work environment.
Safety programs are a crucial part of any business. Many businesses work in an industry that contains an enormous amount of pressure to operate on a time table. No timetable is more important than the safety of the workforce. One injured worker can have an enormous impact on the experience modification rating of the business. No matter what type of deadline a business is working on, preventing injured workers is always more important than meeting a deadline.
Return to Work Program
Included in a safety program should also be a return to work program. An effective return to work program should help your injured worker get back on the job, even in a limited capacity, faster than a business without a return to work program. Humans are creatures of habit and when an employee is hurt and not able to work they have time to create new habits that are not a part of their normal work life. The quicker a business can get the injured back on the job, the more likely that employee is to not develop new habits and the more likely the injured employee is to return to full-time permanent work.
Pay as You Go
Small Business Pay as You Go Workers Compensation Insurance is an immensely beneficial alternative payment program most insurance carriers offer. This alternative payment option allows businesses to get coverage in place at much less up front cost than a traditional workers comp policy. This frees up cash flow for more immediate business needs.