Workers’ Comp provides medical and financial assistance to employees or their survivors for work-related injuries, illnesses, or death.

Running a business means not only planning for the financial health of your company but also caring for the safety and health of your employees. No matter how safe you believe your workplace to be, accidents do happen. Workers’ Compensation Insurance can provide your employees with a financial safety net if they are injured on the job.

What is Workers’ Compensation Insurance?

Workers’ Compensation Insurance is a form of liability insurance that provides financial benefits to employees who suffer work-related illnesses or injuries while working for your business. Workers’ Compensation Insurance, or Workers’ Comp, can pay for an injured employee’s medical expenses, rehabilitation, and a portion of lost wages. If an employee dies from a work-related accident or injury, Workers’ Comp can pay for funeral costs and death benefits for the employee’s surviving family.

In many states, businesses that have employees are required to carry Workers’ Compensation Insurance, but requirements vary by state. In exchange for accepting Workers’ Compensation benefits, an injured employee agrees to not sue your business for the injury. Workers’ Compensation Insurance is no-fault, which means that it pays benefits regardless of whether the employer or employee is at fault for the injury.

Examples:

• An employee is making deliveries for a business using her personal car. The employee rear-ends another vehicle on the road, injures herself, and is unable to work. Workers’ Compensation Insurance would pay benefits to the worker for her medical expenses and partial lost wages.
• An employee in a warehouse is lifting boxes and injures his back. Workers’ Compensation Insurance covers the cost of his doctor’s bills, physical therapy, and medication.
• An employee is mopping the floors of a retail store. The worker trips and falls on the slippery floor, injuring his hip, and he must miss work for several weeks. Workers’ Compensation Insurance would pay for medical bills and a portion of the employee’s lost wages.
• A software engineer suffers a repetitive stress injury in his hands from too much typing on the computer keyboard. Workers’ Compensation Insurance pays for his medical bills and physical therapy costs.

What does Workers’ Compensation Insurance cover?

Workers’ Compensation Insurance covers employees who suffer a work-related injury or illness. A work-related injury is an injury that is related to an employee’s job duties. This includes most injuries that occur while an employee is working, as well as injuries that occur while traveling for work reasons. However, driving to and from work is not covered by Workers’ Comp.

Other types of injuries that occur while working that would be covered include injuries as a result of workplace violence and natural disasters. Illness and occupational diseases caused by an employee’s job, such as exposure to toxic chemicals or dust, are also covered by Workers’ Comp.

While most injuries that occur at work are generally covered by Workers’ Compensation Insurance, each state regulates the kinds of illnesses or injuries that Workers’ Compensation Insurance covers and what tests or medical examinations are required to verify claims. For illnesses or injuries that a state does not require coverage for, employees may still sue your company. Workers’ Compensation Insurance will cover legal defense costs and damages from these illnesses or injuries which are not defined in state Workers’ Compensation regulations.

What does Workers’ Compensation Insurance pay for?

Injury or Illness

When an employee is injured while working or falls ill due to work, Workers’ Compensation Insurance will pay for the employee’s:

• Medical expenses
• Rehabilitation and physical therapy costs
• A portion of lost wages (usually around two-thirds, but it varies by state) during the time the employee is unable to work

The income replacement offered by Workers’ Compensation depends upon whether the employee’s impairment is total or partial, and whether it is temporary or permanent. The impairment is defined as the reduction in earnings capacity. Most states require that benefits be paid for the duration of the disability. Some specify a maximum number of weeks for the lost wages to be paid, especially for temporary disabilities.

Depending on the state, some Workers’ Compensation policies may pay for an employee’s vocational training, if they are unable to return to the same job due to disability or injury.

Death

If an employee dies at work or due to a work-related event, Workers’ Compensation Insurance will pay for:

• Funeral costs
• Death benefits for surviving close relatives, such as a spouse or children

Death benefits for surviving relatives are based upon an employee’s weekly wages. The benefit is a portion (commonly two-thirds but it varies by state) of the worker’s wage at the time of death. Rules vary by state, but for a surviving spouse, the benefit may be paid until their own death or remarriage. For children, the benefits may be paid until the children reach age 18.

Who does Workers’ Compensation Insurance cover?

Workers’ Compensation Insurance covers employees who are injured or fall ill while performing work-related duties. An employee is defined as anyone who provides services at the direction of an employer. This definition may include workers who are not U.S. citizens, as well as minors. Independent contractors are generally not covered by Workers’ Comp, but some companies may misclassify employees as independent contractors, and therefore some “independent contractors” may actually end up qualifying for coverage.

Because Workers’ Compensation requirements are regulated at the state level, certain classifications of workers may be excluded from coverage, depending on the state. The following are some of the types of workers whose coverage varies by state:

• Seasonal workers
• Volunteers
• Agricultural and farm workers
• Domestic workers
• Undocumented workers
• Independent contractors
• Casual or occasional workers

What are the key exclusions to Workers’ Compensation Insurance?

Although Workers’ Compensation Insurance covers most work-related injuries and illnesses, there are some exclusions. Injuries suffered in the following situations would not be covered by Workers’ Compensation:

• Injuries while commuting to and from work
• Drug or alcohol-related injuries
• Injuries sustained while not on the job
• Fights or violence initiated by the employee
• Injuries that are purposefully self-inflicted
• Horseplay or violations of company policy

Is Workers’ Compensation Insurance required?

Workers’ Compensation Insurance is regulated at the state level, and each state has different policies on coverage requirements. In most states, coverage is not required until a business has employees who are not owners or partners in the business. Many states exempt very small businesses from the requirement to buy Workers’ Compensation Insurance. In these states, the threshold that obligates companies to buy this insurance is usually when they hire their third, fourth, or fifth employees. Texas is the only state in which Workers’ Compensation Insurance is fully optional.

Under some areas of employment law, such as Social Security taxes, independent contractors are not considered to be your employees. However, for the purposes of Workers’ Compensation, most states treat an uninsured contractor, subcontractor, or their employees as your employee. This means you may be legally liable for the injuries of your contractor or subcontractor if they are injured while doing work for your company. To avoid unintended liability, many large companies require contractors and subcontractors to provide proof of Workers’ Compensation Insurance.

Regardless of whether you have a legal requirement to purchase Workers’ Compensation Insurance, it is a good idea to carry the coverage if you have any employees. If an employee working for you is injured or killed on the job, you may be legally liable. A single claim by an injured employee can easily bankrupt an uninsured employer.

State Regulation of Workers’ Compensation Insurance

Workers’ Compensation Insurance is regulated by each individual state, and each state has slightly different regulations and requirements for employers and insurance companies. The states determine:

• Benefit amounts for each employee
• Which illnesses and injuries are covered
• Diagnostic tests for impairments and injuries
• Protocols for delivery of medical care

States also have different regulations for providers of Workers’ Compensation Insurance. States generally have one of three systems:

• Insurance provided solely by a state-run insurer
• Businesses can choose between insurance provided by a state-run insurer and private insurers
• All Workers’ Compensation insurers are private companies

For more information on your state’s Workers’ Comp laws and regulations, visit our Workers’ Compensation Insurance state guides:

How much does Workers’ Compensation Insurance cost?

Nationwide, the average cost of Workers’ Compensation Insurance is $936 per employee, per year, or $78 per month. The premiums on Workers’ Compensation Insurance vary depending on a number of factors. Though most small businesses pay less than $1,000 annually for Workers’ Comp, much of the final pricing will depend on your company’s risk to insure.

Pricing for Workers’ Compensation Insurance is based upon a number of factors, including:

• Location of the business
• Number of employees
• Nature of the business, which is based on the industry classification code
• Dollar amount of payroll
• Claims history

In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance company. Below we’ve highlighted a few of our trusted partners who offer Workers’ Compensation Insurance:

Provider	Workers' Compensation	General Liability	Professional Liability	Commercial Auto
CoverageSmith	✔️	✔️	✔️	✔️
CoverWallet	✔️	✔️	✔️	✔️
Embroker	✔️	✔️	✔️	✔️
Hiscox	✔️	✔️	✔️	✔️

For all but the smallest businesses, insurance companies apply an adjustment to premiums called the experience rating. This rating is based on the claims history of a business compared with other businesses with the same industry classification. The higher your experience rating, the higher your Workers’ Compensation premiums will be.

The experience rating is weighted towards the frequency of claims over the severity of claims. Thus, if you have many smaller claims, you’ll have a higher experience rating than a company with only a single large claim. Insurance companies believe that a high number of small claims is a marker that a company will face larger claims in the future, so they raise premiums for businesses with many claims.

The best way to control your Workers’ Compensation costs is to create a work environment that is safe for your employees. By reducing workplace safety risks, you’ll reduce the number of Workers’ Compensation claims and also reduce your premiums.

Assigned Risk Pools

It may be difficult for some types of businesses to obtain Workers’ Compensation Insurance through private insurers. This may include businesses in high-risk industries, businesses with a history of many Workers’ Compensation claims, and businesses in new industries without previous claims history. For these kinds of risks, private insurers may decide that the risks are too high to insure and refuse to issue a policy.

For these businesses, state regulators set up assigned risk pools, where these companies are assigned to insurance companies that are required to issue policies. For these assigned risk pools, premiums are generally significantly higher than obtaining insurance through a regular private insurer.

Workers’ Compensation Insurance vs. Employers Liability Insurance

While Workers’ Compensation Insurance covers medical expenses and lost wages for an employee who gets sick or injured on the job, employers liability insurance protects your business if an employee sues your company for additional damages, outside of what is covered under Workers’ Comp. Employers liability insurance, also known as “Part Two” or “Part B” of Workers’ Comp, can cover legal fees, court costs, and any settlements or judgments against your company. Workers’ Compensation policies usually include employers liability coverage, but in some cases you may need to buy it separately.

Workers’ Compensation Insurance and Coronavirus

With the spread of COVID-19 in the U.S., many workers who have contracted coronavirus have been unable to work due to their illness, and even those who are asymptomatic have had to stay home from work in order to prevent spreading the deadly disease to coworkers or customers. While state laws vary considerably, under most Workers’ Compensation laws, COVID-19 is considered a covered illness if the worker contracted coronavirus while performing services growing out of and incidental to his or her employment or the disease arose out of that employment.

It’s been difficult, however, to pinpoint exactly how or when a person contracts coronavirus, as a worker may be just as likely to contract the virus outside of work as inside. Because of this, there has been much confusion around whether or not a worker who has coronavirus can be covered by Workers’ Compensation Insurance.

Several states are either in the process of or have already made changes to their Workers’ Compensation laws in order to better address coverage for workers who contract COVID-19. Many of these changes involve putting the burden of proof on the employer to show that an employee did not contract coronavirus on the job, rather than having the employee prove that they did contract it on the job.

States are also extending these changes to different groups of workers. While some have specifically applied these changes to health care workers, first responders, and essential workers, others have applied the changes more broadly. Several states are also implementing laws to reduce the impact of COVID-19-related claims on an employer’s Workers’ Compensation Insurance premiums.

To get more information on COVID-19 and how it will impact Workers’ Compensation, check your state’s coronavirus resources for small businesses here.

Final Word

No matter what type of business you run, the risk of an employee becoming injured or sick is real. Whether you work in a high-risk industry like construction or your business works primarily in an office setting, your employees could become injured or sick for a variety of unexpected reasons. In order to better protect your own business from employee injury lawsuits and to provide your employees with financial protection, consider purchasing Workers’ Compensation Insurance. This coverage can provide your employees with financial benefits, including payments for medical expenses and lost wages, in the event of a work-related injury or illness.

Expert Commentary

AdvisorSmith spoke with the following experts to provide critical insight on Workers’ Compensation and worker safety.

Nellie Brown

• Director of Workplace Health and Safety Programs
• The Worker Institute at Cornell University

Nellie's Answers

Marissa Baker

• Assistant Professor
• Department of Environmental & Occupational Health Sciences
• University of Washington

Marissa's Answers

More Experts

Back To All Experts

Q. What steps can employers take to improve worker safety and health in workplaces?

Nellie: You have to look at the basic level of compliance, where there’s regulation, and then you look at hazard reduction and using good guidance. The problem with regulation, however, is that it’s usually a minimum compliance requirement, and you can always go beyond that.

I tend to encourage people to, first of all, make sure that you’re meeting regulation. Then, I think some of the best safety ideas come from the shop floor, and the easiest way to get those is to have a joint labor-management health and safety committee. My view is while you’re paying for eight hours a day, you should be using more of their creativity. People have good ideas—they do the job, so they know what it takes to do it better and more efficiently, and so you end up with savings in a variety of ways.

For small businesses, I tend to find what works well is to do a vulnerability analysis, where you get together a diverse group of people, from labor and management to legal and security, and I take them through an exercise to look at where their vulnerabilities really are. I try to get people to think about those vulnerabilities, and I run them through examples of those scenarios, and I really push the envelope on that. And then I get them to think about the very basics of a recovery plan.

When I’ve taken businesses through this, it’s amazing to see what they generate. Oftentimes, they find things they never would have thought about before because you get so many points of view around the same table. Someone’s vulnerability from your human resource department may be very different from your marketing department or from the people operating your cash register. I think it’s a tremendously important investment.

Marissa: The most important way to improve worker health and safety in workplaces is to have a vaccinated workforce. Workplaces can help to incentivize their workers to get vaccinated by providing paid time off for both the vaccine and if there are adverse side effects. We have heard many workers tell us they haven’t gotten vaccinated due to concerns about missing work, particularly for side effects, so this is a nice place that employers can intervene.

Returning to the office after a year of working remotely can be a challenge for workers. Employers need to keep in mind that workers are juggling different routines, perhaps scrambling to get childcare or finding safe ways to commute. The extent that employers can remain flexible as workers get used to returning to the office will help to improve employee morale and long-term job satisfaction. Employers have an opportunity now to be supportive of their employees and accommodating their needs.

In terms of occupational hygiene controls in the workplaces, an emphasis on ventilation (increase airflow, bring in more outside air, upgrade your HVAC filters if possible), distancing, and masking (particularly for the unvaccinated) remains most important. Things like deep cleaning and frequently cleaning all surfaces is of less value given that the virus spreads through the air, not through touching shared surfaces. The cleaning protocols that were in place prior to the pandemic are likely sufficient.

Similarly, plastic barriers provide limited protection against the spread of the virus. The virus moves through the air similarly to the way exhaled cigarette smoke can permeate a space, so as you can imagine, these viral particles can get around, over, and under barriers. If people are in such close proximity that employers feel barriers are needed, I would rather see people spread out, or stagger work schedules so there are fewer people in the space than a bunch of physical barriers (that could also be blocking fresh air flow!)

Q. What role do individual contributors have in workplace safety and health?

Nellie: I think it can be tough, especially if a workplace doesn’t have a union, and a person is on their own. If a worker is making a complaint to their union, they feel more shielded. But when you’re in an unorganized workplace, and you want to get those ideas from your workforce, you have to provide the climate that encourages them to do it. That’s why I think having a good joint labor-management committee helps because then people can bring ideas to the committee, and the committee can work on their behalf.

But at the same time, I think a well-trained workforce is how you get individuals to have these ideas. Oftentimes, a hazard is obvious, and as long as people feel comfortable reporting it, they’ll do it. But a lot of times, they’re not trained with the simplest tools—how to do a simple job hazard analysis or a simple look at ergonomic risk factors. Once someone is trained in some of the basic tools, they’ll be able to recognize safety and health hazards right away, and they can even begin to come up with good ideas as to what can be done about them.

Marissa: The responsibility to keep workers safe at work is the responsibility of the employer. While it can be tempting to blame work outbreaks on outside behaviors or the worker not adhering to protocols, as an occupational health researcher, I think employers need to be prepared to think deeper than that. For example, if a worker wasn’t wearing their mask, was it because they weren’t given a mask by their employer? Were they having to work at such a high speed that the mask was too uncomfortable? Did they receive training on how and why to wear a mask? Were they bullied by a customer for wearing a mask, making them feel unsafe to wear one? Were they given ample breaks where they could remove their mask?

There are lots of underlying reasons why workers may not follow all workplace protocols, and instead of blaming the workers, the employers can look for what they can do systematically and programmatically to improve compliance with protocols in the workplace and empower workers to let them know when they don’t feel safe, or what the barriers to being safe are.

Specific to COVID-19, employers need to ensure that they are not promoting or rewarding presenteeism, which occurs when workers come to work sick when they should instead stay home. Employers should ensure workers have ample paid time off and no barriers to accessing it (such as facing retaliation or having to find someone to cover their shift).

Workers with access to healthcare and that are paid a living wage are also more likely to take time off when sick. Employers shouldn’t be praising workers who do come to work sick or work during times or circumstances they shouldn’t be working. By creating an expectation that people will stay home when they are sick and they won’t be penalized, the culture can be changed in the workplace to be health-supportive.

Workers showing up to work when they are sick is not a problem with the worker, to me, it shows there is a problem in the workplace which is making the worker feel like they need to go to work at all costs, and it is this type of work culture that can lead to disease outbreaks.

Q. Do some states or jurisdictions have more effective workplace safety regulations than others?

Nellie: You always have OSHA and other federal agency regulations, but there are states that have chosen to go beyond the minimum. Sometimes, the action at the federal level is just not fast enough or detailed enough, or what you get is more guidance rather than regulation. During the pandemic, for example, we observed that some states chose to move ahead with regulations specifically on the coronavirus.

Marissa: States can develop their own workplace health and safety regulations as long as they exceed the federal OSHA standards. During the COVID-19 pandemic, we have seen differences in how different states regulated exposures to COVID-19 and cases of COVID-19 in worker populations. For some states, workers in certain industries (healthcare, emergency responders) who got COVID-19 were automatically compensated under workers’ compensation. For other states, all workers would have to prove workplace exposure to be compensated, and other states still would allow any worker outside the house to automatically access workers’ compensation if they got infected with COVID-19.

There can be a lot of variability state to state in workers’ compensation and worker health and safety guidelines, but in general, those states that have their own state plan as opposed to relying on federal OSHA are able to adapt emergency standards and guidelines a little more nimbly. Also, it’s important to note that workplaces can always go above and beyond their state or federal OSHA, by mandating masks even if the state doesn’t, providing time off for testing/vaccination, allowing paid leave for quarantining, etc. While we look to the state/federal OSHA for what we have to do, workplaces have a lot of leeway to do more to protect their workers.

As we saw the failure of federal OSHA during the pandemic in protecting workers, it was nice to see some states stepping up to take measures to protect workers and ensure they have access to workers’ compensation if they are exposed or infected. COVID-19 is an occupational disease—it spreads in workplaces and the burden of the disease is increased due to work.

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