EMPLOYEE COMPENSATION:
DEFINITION, COVERAGE, BENEFITS, COST, CLAIMS

ECI is an insurance policy that covers employers' legal obligations for employees injured, disabled, or killed due to work-related incidents. It operates on a no-fault basis in most jurisdictions (e.g., USA, Australia), ensuring compensation regardless of fault, though coverage details differ—e.g., the USA includes vocational rehabilitation, while Europe may emphasize social security integration.

In Hong Kong, Employee Compensation Insurance is a mandatory policy that covers an employer's legal liabilities under the Employees' Compensation Ordinance for injuries, occupational diseases, or deaths sustained by employees during work.

It operates on a no-fault basis, meaning compensation is provided regardless of who is at fault, ensuring quick support for affected workers. The policy must cover liabilities under the Ordinance and common law, typically with a minimum limit of HK$100 million per event to handle potentially unlimited claims. It also includes benefits like medical expenses, wage losses, and rehabilitation, helping businesses maintain operations while fulfilling statutory duties.

Is Employee Compensation Insurance mandatory for employers?

Mandatory in most developed countries (e.g., USA, Canada, Australia) under state or federal laws, with exceptions like the UK, where it’s optional but recommended. Coverage often extends to all employees, with fines for non-compliance varying (e.g., up to $20,000 in California).

In Hong Kong, it is compulsory for all employers under Section 40 of the Employees' Compensation Ordinance. No employer can hire staff without a valid policy in place, covering liabilities for medical treatment, wage losses, and other benefits. This applies to any contract of service or apprenticeship, regardless of employee status (full-time, part-time, or casual).

Failure to comply can result in fines up to HK$100,000 and imprisonment for up to two years per uninsured employee.

In 2025, the Labour Department emphasizes stricter enforcement, with regular audits for high-risk industries like construction.

Who is covered under Employee Compensation Insurance?

Covers employees under a contract (full-time, part-time, casual) in most countries, with variations—e.g., USA excludes independent contractors unless misclassified, while Australia includes apprentices. Coverage may extend to work-related travel or occupational diseases.
In Hong Kong, it includes all full-time, part-time, casual employees, domestic helpers, and those injured abroad if employed locally, under a contract of service or apprenticeship. It covers workplace accidents, work-related travel, and prescribed diseases (e.g., pneumoconiosis), but excludes independent contractors unless under a service contract. Directors may need separate coverage.

What are the main coverages of Employee Compensation Insurance?

Core coverages include:

medical expenses for treatment (unlimited in many policies),
periodic payments for temporary incapacity (up to 24 months),
lump-sum payments for permanent incapacity based on a percentage scale, and
death benefits (in Hong Kong, it includes funeral expenses up to HK$10,000 and dependency payments up to 56 months' earnings).

Effective 17 April 2025 in Hong Kong, compensation levels have increased by an average of 3.8% across 18 items under the ECO, Pneumoconiosis and Mesothelioma (Compensation) Ordinance (PMCO), and Occupational Deafness (Compensation) Ordinance (ODCO), as passed by the Legislative Council on 20 March 2025. This adjustment applies to incidents on or after that date, reflecting inflation and wage growth.

What compensation is provided for temporary incapacity?

Payments range from 60-90% of average earnings, with duration limits (e.g., 500 weeks in the USA, 52 weeks in Australia), often adjusted for inflation or cost-of-living increases.
In Hong Kong, employees receive 4/5 of average monthly earnings, capped at HK$1,290 per day in 2025 (post-3.8% uplift), for up to 24 months or recovery, whichever is shorter, plus full medical and rehabilitation costs.

Payments must start within 14 days of certification, with annual adjustments tied to the Average Daily Wages Index.

What Compensation is Provided for Permanent Incapacity or Death?

Permanent total incapacity offers lump sums or pensions (e.g., $300,000 in the USA, lifelong payments in Germany). Death benefits include survivor pensions or lump sums (e.g., $250,000 in Canada).
n Hong Kong, permanent total incapacity yields 96% of monthly earnings times years to retirement (max 84 months, up to HK$3,308,800 in 2025). Partial uses a percentage scale (e.g., 100% for total deafness). Death benefits are 56 months' earnings (max HK$442,800), plus medical/funeral costs up to HK$98,950, effective 17 April 2025.

What are common exclusions under Employee Compensation Insurance?

Excludes intentional acts, non-work injuries, intoxication, or pre-existing conditions (e.g., USA, Australia). Some exclude war or nuclear risks; professional negligence often requires separate coverage.
In Hong Kong, ECI excludes intentional self-injury, criminal acts, non-work incidents, intoxication, war risks, nuclear events, or pre-existing non-occupational conditions. Common law liabilities beyond Ordinance limits need add-ons; high-risk activities (e.g., diving) may be excluded unless endorsed.

What add-on covers or riders are available?

Add-ons include Employers' Liability (UK, USA), rehabilitation costs (Australia), or terrorism coverage (global high-risk zones). Customization varies by insurer.
In Hong Kong, ECI add-on Includes:

Common Law Liability (negligence beyond Ordinance, up to HK$100 million),
Legal Defense Costs,
Employers' Liability (worldwide), and
riders like Rehabilitation Expenses (up to HK$50,000), Terrorism Coverage, or Repatriation Costs,
SME packages offer 10-15% savings with safety audits from providers.

Which insurance companies provide Employee Compensation Insurance?

Major players include Zurich (global), Allianz (Europe), Travelers (USA), and QBE (Australia), with local variations.
In Hong Kong, key providers are Chubb (Chubb Work Guard™ with risk management), AIG (tailored for captives), MSIG (comprehensive defense), Blue Cross (SME-friendly). Brokers like EverBright access diffferent authorized insurers via the Hong Kong Federation of Insurers. The Residual Scheme Bureau covers high-risk denials.

How much does Employee Compensation Insurance cost?

Costs range from 0.5-5% of payroll (e.g., $1,000-$10,000/year for a $100,000 payroll in the USA), varying by risk and state.
In Hong Kong, averages HK$500–HK$1,000 per employee annually (0.5–2% of payroll, e.g., HK$2,500–HK$10,000 for HK$500,000 payroll) for small businesses.

High-risk sectors like construction reach HK$5,000+ per employee. In 2025, expect 3–5% increases due to compensation uplifts; discounts up to 20% via safety programs apply.

What are the key benefits of Employee Compensation Insurance for employers?

Limits liability, covers legal costs, and promotes safety (e.g., OSHA compliance in the USA). Tax deductions vary by country.
In Hong Kong, ECI benefits include:

Ensures compliance,
Protects against unlimited liabilities,
Covers defense costs, and
Offers tax-deductible premiums (16.5% rate).

It includes safety audits, minimizes reputational damage, and supports rehabilitation, potentially saving 20-30% on payouts. Enhanced 2025 coverage aligns with rising claims.

What is the claims process for Employee Compensation Insurance?

The general claim process involves reporting to authorities (e.g., OSHA in the USA), insurer notification, medical assessment, and payment (weeks to months).
In Hong Kong specifically, this process includes following steps:

(1) Notify LD within 14 days (7 for death) via Form 2/2B and insurer within 24 hours.

(2) Arrange medical treatment.

(3) Submit Form 5 and insurer pack with reports.

(4) LD issues Form 5 in 21 days; insurer pays within 14 days for temporary claims.

(5) Appeal within 2 years if disputed. Average 4-8 weeks, with 24/7 support from insurers.

How should an employer report a work-related incident?

The general process includes secure the scene, provide aid, and report to local authorities/insurers (e.g., WorkSafe in Australia).
For Hong Kong employers, the process is:

Secure the scene,
Offer first aid,
Notify LD with Form 2/2B within deadlines, and insurer immediately.
Document with photos, witness statements, and medical notes.
Arrange LD-nominated exams; non-compliance risks HK$25,000 fines.

What happens if an employer fails to maintain Employee Compensation Insurance?

Fines and personal liability (e.g., $50,000 in the USA), with business closure risks.
In Hong Kong, fines up to HK$100,000 and two years' imprisonment per employee, plus unlimited personal liability. 2025 audits double penalties for repeats; insurers must notify LD of lapses.

Get a quote for your upcoming project

CONTACT

Your Needs, Our Services

We offer free consultations. If you want to learn more, please contact us at info@ebactuary.com or 📞+852 3563 8440. You can also fill out our Contact Form, and we guarantee to get back to you within 24 hours.

Liability Insurance