| Workers' Compensation
Self Insured Employer
What is (are)...
- In the State of Colorado, self-insurance is
enabled under Section 8-44-201, Colorado Revised Statutes and is
regulated by 7 Colorado Code of Regulations 1101-4. The following is an
overview of the Colorado Requirements:
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The employer must make application to the Executive
Director of the Department of Labor and Employment. The
Executive Director has sole authority to grant, deny or
terminate self-insurance permits. The employer must have
been in business for at least five years or be a subsidiary of a company that has been in business for five years.
- The employer must demonstrate the financial capability of
meeting all current and long term obligations to include
favorable current debt to equity and other financial ratios.
- The employer must have three hundred employees in the
State of Colorado, working full time. This requirement,
however, may be waived for employers whose parent company
shows an exemplary financial position and assets of
$100,000,000 or more.
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The employer must provide excess insurance coverage. The
retention and coverage limits are approved by the Executive
Director of the Department of Labor and Employment.
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The employer must provide security in the form and amount
as set by the Executive Director of the Department of Labor
and Employment.
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The employer must maintain competent claims adjusting
pursuant to the statutes and rules governing workers’
compensation in the State of Colorado.
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- the Pros & Cons of Self-Insurance in
Colorado?
Pros:Employers may realize
considerable cost savings of self-insurance over traditional insurance by:
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Paying only for their own losses
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Increasing incentive for effective loss control
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Investing dollars otherwise going for premium
-
Improving cash flow
Employers favor the
increased control they have with self-insurance over
traditional insurance by:
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Quicker admission and payment of disability benefits
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Denial of questionable claims
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Immediate investigation
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Ability to expedite granting of benefits on the part of
the self-insured may eliminate anxiety suffered by the
claimant otherwise awaiting benefits under a traditional
plan
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Increased employer participation in modified duty and
retraining programs
Cons:
-
An employer must realize when considering a self-insurance
plan, that because of the “long tail” payout nature of
workers’ compensation liability, earnings and assets may be committed
for many, many years subsequent to the occurrence of
self-insured injuries and exposures as the liability is
discharged.
-
Employer default may cause serious interruption in
benefits being paid to and on behalf of claimants, resulting
in extreme hardship.
- Under self-insurance there is no longer a “buffer” such as
the carrier between the employer and the claimants, which in
some situations may be undesirable.
-
For some, the insurance premium paid for traditional
insurance may provide a more favorable tax exemption over
self-insurance exemption potential.
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- an
independent contractor?
A person hired to perform services for pay is
presumed by law to be an employee unless they meet the definition of an
independent contractor or qualify under a specific exemption provided by
workers’ compensation laws. A person who works as an independent
contractor and can prove that the person meets the legal definition of
independent contractor is not an employee and is not entitled to
workers’ compensation benefits unless the person buys a separate policy.
If a business hires an
individual as an independent contractor, the independent contractor must
be:
- Free from the business’ control and direction over how the
service is performed; and
- Customarily engaged in an independent trade, occupation,
profession, or business related to the service being performed.
These are the two key principles of independent contracting.
A written contract may
be helpful in proving independent contractor status and is always
helpful in defining the work relationship. However, the actual facts of
the work relationship are the most important evidence. If the actual
facts differ from what the written contract says, the facts will
control. A list of important criteria about written contracts is
provided in the section:
What is the value of written contracts with
independent contractors?
It is important to
remember that if a contractor is hired who has employees, the business
must verify that the contractor has workers’ compensation insurance for
those employees. A business may verify insurance coverage by requesting
a certificate of insurance from the contractor’s insurance company.
Notification of any policy changes may also be requested of the insurer.
If the contractor does not have workers’ compensation insurance for its
employees throughout the duration of the work being done for the
business, the business that hired the contractor can be held responsible
for the workers’ compensation insurance for the contractor’s employees.
If the business provides coverage for the contractor’s employees because
the contractor failed to do so, the business can recover the cost of the
premium from the contractor.
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- the
value of written contracts with independent contractors?
When a business intends
to hire an independent contractor for a project, the parties may decide
to write a contract. This helps to establish that the independent
contractor adequately meets the two key principles of independent
contracting identified in the section:
What is an independent contractor?
A contract should show the following factors appropriate to the parties’
circumstances.
- The business does not require
the individual to work for it exclusively, period of
time specified in the contract.
- The business does not establish
a quality standard for the individual, how the work
will be performed.
- The business does not pay a
salary or an hourly rate but rather pays a fixed or contract
rate.
- The business does not have the
right to terminate the individual’s services or fails to
produce a result that meets the specifications of the contract.
- The business does not provide
more than minimal training for the individual.
- The business does not provide
tools or benefits to the individual, except that materials
and equipment may be supplied.
- The business does not dictate
the time of performance, except that a ours may be
established in the contract.
- The business does not pay the
individual personally but rather makes checks payable to the trade or business name of the individual.
- The business and the individual
do not combine business operations in any way; all business
operations are maintained separate and distinct.
REMEMBER: A written contract may be helpful in proving
independent contractor status. However, the facts of the work
relationship are actually more important than what the contract says.
Section
8-40-202(2), C.R.S.
states requirements for disclosure and format for such contracts. Be
sure you are familiar with this section of the law.
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- the role of the Division
of Workers’ Compensation?
The Colorado Division of Workers’
Compensation is the state office responsible for administering and
enforcing the workers’ compensation law in this state. In doing so,
it recognizes the intent of the Colorado General Assembly to ensure
the quick and efficient delivery of disability and medical benefits
to injured workers, at a reasonable cost to employers.
As the agency overseeing workers’
compensation in this state, the Division establishes rules,
procedures and programs to enforce the law and to resolve disputes
that may arise between the employer and the injured worker.
The Division does not pay benefits
on a claim. Rather, employers purchase insurance coverage through a
private insurance company or, if qualified, through self-insurance
programs. No portion of this cost may be deducted from an
employee's wages.
To learn more about Division
services, obtain information about the Colorado workers’
compensation system, or to make specific inquiries, we invite you to
contact our Customer Service Unit at (303) 318-8700 in the Denver
metro area, or toll free, at (888) 390-7936.
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