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Jill Aldredge
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October 5, 2016
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Laws Leave Gap in Workers’ Compensation Coverage for Employers

Getting hurt on the job can be a pain – in more ways than one. Expensive medical bills and lost time at work often follow serious injuries, making an already bad situation worse. Many states have a statute that requires employers with one or more employees to provide workers’ compensation coverage. Sometimes, however, states exempt certain employees from this mandate. For example, Nebraska exempts federal employees, railroad employees, most volunteers and casual workers, independent contractors, household domestic servants and some employees of agricultural operations. Exempting classes of workers from the statute does not mean that an employer can’t be held liable if an injury, illness or death occurs; it simply means that an employer is not subject to a state’s workers’ compensation law to insure those employees. It also means that those individuals are not restricted by the offerings of the workers’ compensation system and, in the event of injury, illness or death, they can sue the employer. If they can prove negligence, their potential payout could far exceed what the law would have allowed under the workers’ compensation policy.


Problem Solved?
In order to close this coverage gap, employers can add a voluntary compensation endorsement to their workers’ compensation policy. Voluntary compensation coverage extends workers’ compensation benefits to workers who would not otherwise be eligible for them as a result of the statute. If an exempt worker can be shown to be an employee who would be covered by the endorsement, it would respond similarly to the workers’ compensation policy and provide the state-mandated coverage, benefits, releases and transfers of subrogation that are included in the workers’ compensation policy. Without the endorsement, it is possible that an insurance carrier could deny coverage based on the exemptions. Normally an employer can add the voluntary compensation endorsement to its workers’ compensation policy at no cost. While all of this sounds fairly black and white, the endorsement does have some gray areas that can leave employers a bit confused.

Employee vs. Volunteer
When it comes to voluntary compensation coverage, there is a lot of discussion and confusion regarding this endorsement and how it relates to volunteers. The endorsement is not meant to cover volunteer workers. It is designed for people who receive compensation and meet the definition of an employee. However, volunteer workers play an important role in many types of industries, and companies may want to offer them protection for injuries that could occur during their volunteer time. Employers should first review their state’s employment laws to determine if volunteers could possibly be covered for workers’ compensation. In most states, volunteer firefighters, emergency medical personnel and drivers are covered and considered employees of the town that they serve.

Volunteers are most commonly used in charitable organizations such as churches, nonprofits and hospitals, and they determine how often and how many hours they work. If employers are setting hours for volunteers and treating them as employees in all areas except compensation, the state may determine that the volunteers are actually employees. If volunteers receive compensation in the form of discounts, vouchers or credits, they could also be viewed as employees by the court. If they do not receive anything for the services they provide, they are truly volunteers and not entitled to workers’ compensation benefits according to the law.

Insurance Company Challenges
The challenge that insurance companies face when volunteers do not receive compensation is that they have no way of collecting premiums for the increased exposure related to the volunteers. Therefore, if volunteers are used, insurance companies should be notified so they are aware of the potential exposure that exists. The insurance company may request that the employer state the amount they would pay a regular employee to do the job the volunteer is performing and that a class code and payroll be assigned so the insurance company can collect a fair rate for the exposure and benefit levels can be established in the event of a loss. According to the Corporation for National and Community Service, the estimated value of volunteer time is $23.07 per hour. For a small nonprofit, adding that payroll to their workers’ compensation policy could be cost prohibitive.

Coverage Alternatives
Normally volunteers understand that they are serving at their own risk and that their health insurance plans will cover any injuries that occur during volunteer activities. It is a good practice to have volunteers sign waivers or hold harmless agreements to release the employer from liability for their accidents or injuries.

An employer with a large group of volunteers might consider providing accident medical coverage as an alternative way to protect their volunteers from accidents or injuries. Accident medical coverage is less expensive than workers’ compensation premiums. It would eliminate claims being filed in the employer’s workers’ compensation policy, which would allow them to better control their experience modification factor and any potential workers’ compensation performance dividends that might be available.

Protecting Everyone
While we do our best to prevent workplace injuries, accidents inevitably happen. It is important for employers to know how their policies will respond when workers are injured – whether they are employees or unpaid volunteers. For additional information on voluntary compensation coverage or to discuss how to handle volunteer workers or workers who are exempt from state laws, please contact SilverStone Group’s Risk Management Team.

This article originally appeared in the 2016 | ISSUE TWO of the SilverLink magazine under the title “Workers’ Compensation Laws Insurance Gaps.” To receive a complimentary subscription to the SilverLink magazine, sign up here.

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