Workers' compensation, also known as "workers' comp," is a government-mandated program that provides benefits and payments to employees who suffered a work-related injury or have been diagnosed with an occupational illness. It is basically a workers' disability insurance policy that provides monetary compensation, healthcare benefits, or both to workers who are injured or ill as a direct result of work-related accidents.
In the U.S., various states generally manage and administer workers' compensation. As workers' compensation state laws vary, the insurance benefits that come with it also differ. For example, an employer is mandated by federal law to have workers' compensation for an employee all states except Texas.
To learn more about workers' compensation and the benefits it provides for employees who experienced work-related accidents, continue reading below.
Breaking Down Workers' Compensation
Workers' compensation benefits may include partial wage replacement benefits to compensate for lost wages while an injured employee cannot work. It also includes disability benefits to provide payment for any temporary or permanent disability resulting from getting injured on the job.
In addition to the monetary compensation for the damages caused by a work-related accident, workers' compensation insurance covers medical care and occupational therapy reimbursement expenses.
Workers' compensation is also beneficial for employers as it helps protect their business. It is done in three ways:
- The worker's compensation program ensures safety and protection for your employees in the event of a workplace accident;
- Having workers' compensation coverage protects your company from lawsuits for any liability for a workplace injury;
- Workers' compensation keeps companies and businesses compliant with their state government regulations.
Private insurers fund most workers' compensation policies through premiums paid by individual employers. Each state has a Workers' Compensation Board, which manages the insurance program and mediates workers' comp claims and disputes.
What To Know About Workers' Compensation Benefits
Statutes in each state establish workers' compensation policies and systems. State laws and court rulings govern the majority of the program, and no two states have the same laws and restrictions.
Workers' compensation requirements also vary by state, and certain states do not cover all employees. Some conditions, for example, exclude small businesses from mandated coverage. Others have different requirements for various industries. The National Federation of Independent Businesses (NFIB) has a summary of each state's workers' compensation laws.
Salary Replacement Benefits
Salary replacement, also known as wage replacement benefits, is a form of payment for lost wages when an employee cannot work due to a work-related injury or occupational illness. Typically, a replacement salary is less than a worker's total salary.
There is a system to calculate the amount to be paid, but most insurance policies cover about two-thirds of the employee's gross salary. Workers' compensation benefits are typically not taxable at the state or federal levels, allowing the injured employee to retain a significant portion of the wage replacement benefits.
For more information regarding taxation rules on workers' comp benefits, you can visit this article.
Healthcare Cost Reimbursement And Applicable Survivor Benefits
Most compensation plans offer medical care coverage only for injuries incurred directly from employment. For example, a construction worker could claim compensation for an injury resulting from falling from scaffolding but not for an injury sustained in a driving accident while going to work. Some conditions may render a workers' comp claim invalid, including:
- Alcohol use and intoxication while at work;
- Self-inflicted injuries; and
- Disabilities are incurred as a result of going against company policy.
In other situations, workers can receive the equivalent of sick pay while on medical leave. Workers' compensation insurance provides death benefits for the employee's dependents if an employee dies due to a work-related accident.
Waiving The Right To Sue Employers
Workers' compensation programs have been around for quite some time and have been referred to as the “grand bargain” between employers and employees. An injured employee waives the right to sue their employer for negligence by agreeing to receive worker's compensation.
This agreement is intended to protect both the employee and the employer. Workers withhold further damage claims in exchange for guaranteed compensation, but employers agree to some liability while avoiding the potentially expensive costs of negligence lawsuits and case trials.
How Do Special Considerations Work
Employers can dispute workers' compensation claims. When such instances arise, the Workers' Compensation Board is responsible for mediating the dispute between the parties.
Disputes often arise regarding whether employers are responsible for work-related accidents or occupational illnesses. Also, questions regarding management and administration duties, workplace safety, and employee benefits are routinely reviewed by the Workers' Compensation Board.
Workers' Compensation payments are also susceptible to insurance fraud. Employees may misreport injuries at work, exaggerate the severity of injuries, or makeup injuries. The National Insurance Crime Commission found an "organized crime syndicate of corrupt doctors, lawyers, and patients" to put forward false claims to health insurance companies for workers' compensation benefits.
Is There An Exception?
Workers' compensation is not a benefit that every employee is entitled to. While most workers at private companies and those employed by the state or federal government are eligible for coverage, specific categories of workers are exempted from workers' compensation. These include the following:
- Freelancers
- Independent contractors
- Part-time workers
- Seasonal employees
- Domestic employees
- Agricultural employees
This exception for members of the so-called "gig economy" is one of the main contentions in a debate over a California ballot measure. However, there have been multiple calls to extend workers' compensation coverage and benefits to independent contractors. This will help numerous non-contract workers, such as drivers for ride-sharing apps like Uber and Lyft.
Types of Workers' Compensation In The US Know
In the United States, workers' compensation rules depend on varying statutes based on local government laws. This means that the same injury can receive completely different compensation and benefits depending on where the injured employee resides.
The U.S. Department of Labor hosts the Office of Workers' Compensation Programs, but only for federal employees, longshoremen and dockers, energy workers, and coal miners.
The lack of federal standards for workers' compensation has resulted in highly different policies from state to state for the same type of injury claims. Nonetheless, there are generally two types of workers' compensation coverage: Coverage A and Coverage B.
Coverage A
Coverage A includes all state-mandated benefits for which an injured or sick employee can receive employment insurance benefits. This covers replacement payments for lost wages, medical, vocational rehabilitation, and death benefits (if applicable). All states except Texas have such help, but they vary widely and may exclude some employees from eligibility.
Having access to Coverage A from your insurer dramatically increases your chance of properly recovering and being able to get back to work immediately.
Coverage B
Coverage B provides payment for more than the minimum benefits required by Coverage A. They are also known as "liability insurance." They are usually paid only as a result of a successful claim by the injured employee for negligence or other misconduct by the responsible person.
Workers who agree to receive workers' compensation typically waive their right to sue their employer and, in doing so, agree to a "no-fault" contract. However, many state laws and court decisions have restored workers' rights to sue in various strictly-defined situations. Therefore, an employer may be mandated to purchase a policy that combines Coverage A and Coverage B.
Paying For Premiums
The employer is responsible for paying the workers' compensation insurance premiums. The employer purchases insurance premiums from private insurance companies. However, in some instances, the state government provides aid to employers who can't afford extensive insurance premiums for their employees.
Your payroll will not be deducted for premium insurance coverage, similar to Social Security Disability benefits. The employer must pay workers' compensation benefits established by individual state laws. However, there are certain exceptions to this, as mentioned earlier.
Costs And Rates To Know
The cost of workers' compensation insurance varies from state to state, and so do the benefits that come with it. The insurance rates also differ depending on whether the insured employee performs low-risk or high-risk work.
Here are a few examples of fees that companies pay for insurance premiums based on their payroll numbers:
- In California, workers' compensation costs an average of 40 cents per $100 salary for low-risk workers and $33.57 for those with high-risk jobs.
- In Florida, the low-risk job would cost approximately 26 cents per $100, while high-risk jobs would come in at $19.40.
- In New York, the average is 7 cents per $100 for employees with low-risk jobs, and the standard for a high-risk job is $29.93 per $100.
It is essential to keep in mind that these numbers could still change depending on other factors, such as:
- Coverage limits
- Claims history of the company
- Number of employees
Frequently Asked Questions
Understanding workers' compensation is no easy task. Here are a few questions people frequently ask regarding workers' compensation.
The rules and requirements for applying for workers' compensation benefits vary depending on where you live. However, there are general steps you should take when you experience a work-related injury or occupational illness:
When possible, write down the details of the injury or illness, with photos and the names of witnesses. This will serve as evidence when you file a workers' compensation claim.
Immediately notify your employer of your work-related injury or illness. Usually, the employer should take it from there, filing your claim with the insurer and ensuring you receive the benefits you are entitled to. You can request further updates from the employer's insurance company to provide a lawsuit filed.
If your claim is denied, you can appeal the decision to your state's workers' compensation board. However, it is best to let a workers' compensation lawyer handle your claim to ensure you receive a favorable settlement.
Similar businesses in each state with comparable workplace injury patterns and costs are grouped into "classes." A rate is set for each class based on the loss cost for all companies within that class over the last five years.
The economic variables for each state are then overlaid on this data to determine rates for each class in a given state. This provides an unbiased system for calculating rates that reflect the business's actual loss experience.
With a few exceptions, most states require businesses and employers to purchase workers' compensation insurance for their full-time and regular employees.
Businesses that fail to provide workers' compensation insurance can face severe and costly legal consequences, including having to pay out-of-pocket insurance claims, fines and imprisonment, and possibly losing their license to conduct business in the state.
Generally, workers' compensation insurance covers only employees, not contractors or freelancers.
With each state having their own laws and mandates for workers' compensation, coverage and eligibility will also differ. For example, Arkansas expressly excludes agricultural workers and realtors from being eligible to receive workers' compensation benefits.
Idaho excludes domestic workers from receiving wage replacement benefits and medical benefits. Louisiana excludes musicians and dust-spraying crew from being protected by workers' comp.
If you are forced to retire due to a work-related injury, you may wonder if you are still eligible to receive workers' comp benefits. Find out whether a retired employee can collect workers' compensation benefits in this article by Disability Help.
