Often referred to as “workers comp,” workers’ compensation is a government-backed program that provides certain benefits to employees who become ill or injured on the job as a result of the job. It is essentially a disability insurance program for employees, offering healthcare and cash benefits, or sometimes both to employees whose job duties directly result in illness or injury.
Workers’ compensation is largely a function of state governments, and required benefits can vary significantly from state to state. Currently, Texas is the only state in the country that does not require workers’ compensation benefits.
Key Benefits of Workers’ Compensation
One of the key benefits of workers’ compensation is partial wage replacement for the time employees cannot work. Benefits may also include occupational therapy and reimbursement for medical care. The majority of workers’ compensation programs are paid for by private insurance companies by premiums paid by employers. All states have a Workers’ Compensation Board that monitors the program and mediates disputes between employees and employers.
Federal workers’ compensation programs are also available to federal, energy, and harbor workers. An additional federal program, the Black Lung Program, provides death and disability benefits for miners and their dependents.
Only regular employees are eligible for workers’ compensation benefits in most states – independent contractors and freelancers are not.
As previously mentioned, workers’ compensation benefits vary from state to state, and not all employees are covered in some states. For example, small businesses do not have to carry insurance in some states. There are also different requirements for different industries in many states. To obtain a summary of each state’s workers’ compensation requirements, visit the National Federation of Independent Business (NFIB) website.
What Does Workers’ Compensation Cover?
Workers’ compensation does offer salary replacement benefits. However, the replacement salary an employee receives while they are unable to work is typically less than their usual salary. Most insurance programs pay about two-thirds of a worker’s gross salary. Workers’ compensation benefits are usually not taxed federally or at the state level.
Workers’ compensation provides coverage for medical expenses related to the injury or illness caused by an employee’s job. Injuries sustained on break or while commuting to a job site are usually not covered. If an employee is on medical leave, they can receive the equivalent of sick pay, and if a worker dies as a result of their on-the-job injury, their dependents can receive their worker’s compensation payments.
Suing an Employer for Negligence
When an employee agrees to receive workers’ compensation payments, they give up their right to sue their employer for negligence. The workers’ compensation program is intended to protect both employees and employers. Employers consent to a certain degree of liability while avoiding the higher costs associated with a lawsuit and employees give up their right to sue for guaranteed compensation.
On some occasions, a worker’s claim for compensation can be disputed by their employer. If a dispute arises, the Worker’s Compensation Board will intervene to settle the dispute. Disputes often arise over whether an employer is actually legally responsible for an illness or injury. Workers’ compensation payments are also vulnerable to insurance fraud. In some cases, an employee can falsely claim that their injury was sustained while working, and after filing a claim, they may greatly aggravate their injury for the sake of obtaining compensation.
The United States Department of Labor has its own Office of Worker’s Compensation Programs, but this office only oversees federal workers. Since there are no nationwide federal standards for workers’ compensation programs, policies and requirements vary from state to state. The same injury can receive drastically different types of compensation depending on the state a worker resides in.
Types of Workers’ Compensation Insurance
There are two types of workers’ compensation insurance – Coverage A and Coverage B.
- Coverage A includes all the state-required benefits that ill or injured employees are entitled to according to their employer’s insurance. This coverage provides salary replacement benefits, in addition to medical care, rehabilitation, and death benefits (if necessary).
- Coverage B provides more benefits than the minimums mandated by Coverage A. These benefits are typically paid only as the result of a lawsuit filed by the employee for the misconduct or negligence of their employer.
It is important to note, however, that although an employee may not technically sue if they agree to receive compensation, some state courts and legislatures have ruled employees do have the right to sue under certain circumstances. For this reason, many employers purchase both Coverage A and Coverage B. Employers are responsible for paying workers’ compensation insurance premiums. Unlike Social Security benefits, there are no payroll deductions for workers’ compensation.
Filing a Claim
The rules workers must adhere to a properly file a workers’ compensation claim varies by state. In most cases, when a worker is injured or falls ill, they should:
- Document the details of their illness or injury. They should also take photographs of their injury and record the names of any witnesses.
- Report the injury or illness to their employer as soon as possible. The employer will take the additional steps and file a claim with their insurance company.
Employees may keep track of the status of their claims by contacting the insurance company. If their claim is denied, they do have the right to appeal.
Do Small Businesses Need Workers’ Compensation Coverage?
Do you really need workers’ compensation insurance? In short, the answer is yes. Small businesses need insurance because:
- States that require businesses to carry worker’s compensation usually impose considerable penalties for businesses that fail or refuse to comply.
- Most states require companies with more than one employee to maintain insurance.
- You must carry coverage no matter who is at fault. Often, employees are eligible for coverage even if their illness or injury is a result of their own negligence.
- Health insurance is not an adequate substitute for workers’ compensation, which only covers medical expenses resulting from an on-the-job illness or injury.
How Much Does Workers’ Compensation Cost?
There are many factors that affect the cost of workers’ compensation insurance premiums. Not all businesses are charged the same. Some of the factors include:
- Risk – Businesses in riskier industries, such as construction, fishing, or the restaurant industry, tend to pay higher premiums. This is because workers in these industries tend to face higher occupational risks and sustain injuries more often. Calculating rates for companies that hire employees to perform different types of work can be more difficult.
- Previous Claim History – Employers who have filed many claims in the past will be subject to higher premiums.
- Payroll Size – The more employees a company has on its payroll, the more likely the company will be to file claims regularly.
- State Requirements – Some states require any business with more than one employee to carry insurance. Other states allow companies to have a certain number of employees before they need to purchase insurance. In states where all types of employees must be covered, businesses typically face higher premiums.
- Additional Workplace Activities – Companies that require their employees to perform additional activities outside the workplace pay higher premiums. For example, if a business requires its employees to travel to and from work sites, they are considered a higher risk.
You Need Workers’ Compensation Insurance
As a business owner, you need workers’ compensation insurance to protect you and your employees. There are many companies offering workers’ compensation coverage, so you will need to choose one that fits your needs. Find out more about workers’ compensation insurance by visiting your state’s website.