Insurance Compliance

Employers / Workers’ Compensation / Insurance Compliance

Employers looking to protect themselves from liability in on-the-job injury cases can find information about insurance coverage options, leasing arrangements and know what’s required by law.

Note for employers: How you choose to insure your workers’ compensation liability is your decision. Should you have any questions, contact the Workers’ Compensation division at 1-800-528-5166 or 334-956-4044.

Workers’ Compensation Coverage

Who needs workers’ compensation coverage?

If you regularly employ fewer than five employees—full-time or part-time, including corporate officers—you are generally not required to carry workers’ compensation insurance under Alabama law. The exception is businesses involved in constructing or assisting on-site with new single-family, detached residential homes, which are required to maintain coverage.

Employers of domestic workers, farm laborers, or casual employees, as well as municipalities with a population under 2,000 (based on the most recent federal census), are not required to provide coverage. However, these employers may choose to elect coverage under the Alabama Workers’ Compensation Law.

Why carry workers’ compensation coverage?

It is required by law for many employers.
It serves as the exclusive remedy for on-the-job injuries and occupational diseases.
It limits an employer’s civil liability and helps avoid additional penalties or fines.

Mutual Protections in Workers’ Compensation Law

Alabama’s Workers’ Compensation Law provides significant benefit to both employer and employee. Employees are guaranteed a “benefit certain” in the event of an on-the-job injury or occupational disease. Employers pay this insurance.

The employer is protected by the “exclusive remedy” provisions of the Law. This means an injured worker is entitled to only the benefits required by law, limiting the employer’s liability.

Coverage Options

There are many ways to cover your liability.

Purchase insurance from an approved commercial workers’ compensation carrier.
Provide coverage through a group self-insurance fund.
Individually self-insure, if qualified.

Option 1: Commercial Insurance — Voluntary Market

You can purchase an approved insurance policy through a licensed insurance agent underwritten by an approved insurance carrier who will write an insurance policy for you. This is known as purchasing insurance coverage on the “voluntary market.”

Who is this for? Insurance on the voluntary market is for any employer who has a low to medium workers’ compensation exposure or claim history.

How do I get it? It’s purchased through your insurance agent.

Advantages: Recognized by the State Courts. Provides an approved policy at a reasonable price that is guaranteed by the Alabama Insurance Guaranty Association. Your choice of buying from the insurance carrier with the most competitive rates.

Disadvantages: Insurance carrier determines whether to renew your policy. You are subject to rate increases.

Comments: The Alabama Department of Insurance approves all insurance carriers, their policies and the agents who represent them. A directory containing the names and addresses of approved insurance carriers can be obtained from the Insurance Department.

Option 2: Commercial Insurance — Assigned Risk Pool

You can purchase insurance through the Assigned Risk Pool when insurance carriers decline to write an insurance policy for you. This is known as purchasing insurance coverage on the “involuntary market.”

Who is this for? Insurance from the involuntary market is for any employer who has a medium to high workers’ compensation exposure or claim history.

How do I get it? It’s administered by the National Council on Compensation Insurance (NCCI) and purchased through your insurance agent.

Advantages: Provides an approved policy that is recognized by the State Courts. Guaranteed by the Alabama Insurance Guaranty Association.

Disadvantages: High cost. No choice of insurance carrier. Subject to rate increases.

Comments: You must contact and be refused by two insurance carriers and make a direct application to the NCCI Assigned Risk Pool through your insurance agent providing proof that the insurance carriers turned you down. Insurance carriers participating in the Assigned Risk Pool have been approved by the Alabama Department of Insurance.

Option 3: Group Self-Insurance

You can obtain coverage by joining a group self-insurance fund. This is a common fund where employers have by agreement pooled their liabilities to provide workers’ compensation benefits to their employees.

Who is this for? Group self-insurance is for any employer who is willing to enter into an agreement to pool their workers’ compensation liabilities and who meets the underwriting requirements set forth by the Fund.

How do I get it? It can be purchased through your independent insurance agent or by contacting the Group Fund Administrator.

Advantages: Recognized by the State Courts. Approved and regulated by Workforce Alabama. Provides workers’ compensation liability coverage at a reasonable price. Choice of joining with a variety of Funds. Attractive rates.

Disadvantages: The Fund determines whether or not to renew your membership. Subject to rate increases. In the event the Fund becomes insolvent, you can be assessed to make up the monetary shortages (known as Joint & Several liability).

Comments: The names, addresses and telephone numbers of most approved group self-insurance funds can be obtained from the Workers’ Compensation Division of Workforce Alabama. Or you can call the Self-Insurance Section at 1-800-528-5166 and request the name of the most appropriate group fund for your class or business.

Option 4: Individual Self-Insurance

You can become a self-insurer. This is a long-term commitment by which a financially strong employer pays benefits to injured employees as mandated by the Alabama Workers’ Compensation Law.

Who is this for? Any employer who meets the following four financial qualifications: (1) audited financial statements; (2) a $5 million minimum net worth; (3) current assets to current liabilities ratio of 1.0 or greater; and (4) a positive net income. You may conduct a feasibility analysis to determine if it is cost effective for you to self-insure.

How do I get it? You can apply here or receive a packet by writing to Workforce Alabama’s Workers’ Compensation Division, 649 Monroe St., Montgomery, Alabama 36131, or by speaking to an employee in the Self-Insurance Section at 1-800-528-5166. You can also contact an insurance agent that specializes in self-insurance.

Advantages: Recognized by the State Courts. Hands-on management of claims, legal issues and safety programs.

Disadvantages: Long-term liability due to lifetime medical benefits mandated by Law.

Comments: Cost considerations include assessments, fees, taxes, excess insurance limits and retention, cost of the claim servicing organization, payments to the injured workers, litigation, consultation, membership in Alabama Workers’ Compensation Self Insured Guaranty Association, safety and loss control and exposure to un-funded losses of incurred but not reported claims. Individual self-insurance is regulated by Workforce Alabama.

Employee Leasing Arrangements

Employee leasing companies are not the same as temporary staffing agencies, nor are they a substitute for workers’ compensation coverage.

In an employee leasing arrangement, an employer contracts with a leasing company to provide workers. Typically, the employer transfers its employees to the leasing company, then leases those same employees back. The employer pays the leasing company for wages, benefits, required employee benefit programs, and government withholdings. The leasing company then handles payroll processing, tax withholdings, and payment of wages and benefits.

One potential advantage of this arrangement is access to group benefit rates, such as health insurance, that may be available through the leasing company due to its larger employee pool. Leasing companies may also provide additional administrative services.

Important: While many employee leasing companies operate lawfully, some do not fully comply with legal requirements. If you contract with a company that is not operating in compliance with the law, you may face the same risks as if you did not have proper coverage. Employers should seek legal advice before entering into an employee leasing agreement.

Contact

Workers’ Compensation
50 N Ripley Street
Montgomery, Alabama 36130

334-956-4046 or 1-800-528-5166.

This content is distributed for information purposes only. It’s not to be construed as, nor does it have the effect of, law or regulation.