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

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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.

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 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.

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?

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

To get pricing on Workers’ Compensation Insurance, request a quote:

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 healthcare 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.