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Workers' comp coverage for household employees

A young woman working as a nanny for a Houston family fell while making lunch in the kitchen. She broke her leg, a medical expense the family chose not to foot. Nor could they afford to pay her wages while she recuperated, so they fired her.

If she had been a guest pitching in to make a salad, the family's homeowners policy most likely would have taken care of it. But household employees present a different kettle of fish, says Rebecca Woan, principal at Chartwell Insurance in Chicago.

"There's lots a homeowners policy does cover," she notes. "But it was not meant to provide workers' compensation benefits."

And a domestic worker's accident could be just the beginning of homeowner hassles, adds Boston-based attorney John N. Lewis. If it happens in a state that requires workers' compensation coverage for full-time, in-home nannies, a non-compliant employer could end up facing both criminal and civil penalties.

That's why it might pay for household employers to check into workers' compensation insurance.

"Belt and suspenders are never a bad thing if you don't want your pants to fall down," Lewis says. "So given the astronomical potential if your nanny falls down the stairs and breaks her neck because you forgot to fix the torn carpet, it can't hurt to cover all angles."

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State-by-state rules
The range of state-governed workers' compensation rules resembles a thick fog. Who must, who should and even who can't depends on your borders.

You can get an idea of your state's requirements by checking the U.S. Department of Labor's directory of state workers' compensation officials, which contains contact information as well as links to state Web sites that detail specific insurance requirements. It's also vital that you turn to your insurance agent or lawyer (and preferably both) for specific advice about your situation.

Woan recommends her clients buy in even when participation is voluntary. Workers' comp offers a variety of benefits. It pays immediately and covers both medical expenses and lost wages, the concerns that drive many household employees to seek legal restitution in the first place.

Plus, employees who accept workers' comp coverage forfeit the right in most states to sue for pain and suffering, she adds. The insurance also covers disability situations and in some states, workers' compensation laws grant employers the right to choose an employee's provider for work-related treatments.

Yet even the savviest families don't quite grasp why they need to invest in a workers' compensation policy. Take a peek at these common reasons for saying, "No":

My nanny has her own health insurance plan. She's definitely ahead of the game when it comes to colds, flu and chicken pox, but you're not off the hook for injuries. As Woan points out, when a health insurance company's due diligence reveals the claim stems from a work-related incident, the insurer seeks to toss the medical ball into the employer's lap. That's yours. And you haven't addressed that dangling issue of lost wages during recovery.

I have automobile insurance that covers additional drivers. Because nannies spend a majority of their time carting around the kids, it's no surprise that vehicle accidents are the No. 1 claim processed for child-care workers. Depending on the policy you tailor, you can expect this angle to handle damage to your car, any other vehicles involved in the accident and medical expenses. "But what if your nanny can't walk the same after that? Who pays for the fact she can't do her job any longer?" asks Arthur Ellis, president of the Chicago-based Nanny Tax Company.

An agency sent my nanny. If the agency employs the nanny, she is a guest under your roof, with homeowners policy privileges. If the firm referred her from its database and you do the hiring, she's yours to insure, says Pat Cascio, president of the International Nannies Association and owner of Morningside Nannies placement firm.

I'm self-employed, so my business will hire her and the business policy will cover it. Whoops! In this scenario, only the business is protected from any civil suit an injured nanny might file. The nanny still could sue the family if the injury was due to a family member's negligence.

"Most people consider the nanny part of their family, so they don't understand that in many states and in many contexts, they're an official employee," Lewis says. "And it's not that they're afraid to ask about it. They just don't see the real potential for harm. That even goes for sophisticated lawyers."

Woan's experience bears out that attitude. Most of her clients walk through the door to discuss property and casualty insurance, never spotting the real gaping hole that lies in liability insurance for the nanny.

The cost to play
Workers' compensation rates usually are set by job category, and some states assign domestic workers to a pool, the place to dump everyone that no insurance company really wants to pick up.

For the Illinois-based Ellis, it means premiums of $650 a year, a rate experts like Woan assure is average, but still more than he pays for two clerical employees at his Nanny Tax Company office. "On the other hand, no one at the office is out riding bicycles in the street. No one is at the top of the slide," he admits.

Because the total audience for this type of insurance officially hovers at only 200,000 (that's how many people pay federal taxes on their child care workers, according to Ellis), the small market doesn't encourage premium competition. In a nutshell, costs are based on salary, so theoretically if you offer higher wages than your neighbors, your workers' comp payments inch up, too.

"The pay ranges for nannies tend to fall within a certain bend and I've not had anyone yet who exceeded the threshold," says Woan. "If you can afford a nanny, you should be able to afford the workers' compensation.

"Like all insurance, you pay the price up front, which minimizes the aggravation later."

Julie Sturgeon is a freelance writer based in Indiana.

-- Updated: Oct. 8, 2003

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