Workers’ compensation insurance pays vital benefits to employees when they are injured or sick because of their job. Workers’ compensation benefits include medical treatment and on-going care, payments to cover lost wages and even death benefits.
In most states, businesses are required to buy workers’ compensation insurance for their employees—possibly even if they only have one employee.
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What Is Workers’ Compensation?
Workers’ compensation insurance provides compensation for lost wages and medical care for people who are hurt due to their jobs. Employers pay for workers’ comp coverage. Employees don’t contribute to the funds.
A workers’ compensation claim is paid if the employer or insurance company confirms that the injury or illness was work-related. If the insurer or employer rejects the workers’ comp claim, a workers’ compensation judge decides on the case.
In addition to paying for injuries and rehabilitation, workers’ compensation may compensate a family after a work-related death.
Brief Facts About Workers’ Comp
- Workers’ compensation programs were established by state statute or within state constitutions beginning in 1911.
- Today, each of the 50 states and Washington, D.C., have their own workers’ compensation program.
- With the exceptions of Texas and Wyoming, workers’ compensation insurance coverage is mandatory in all states.
- Agricultural workers, domestic employees and independent contractors are generally excluded from a workers’ comp insurance requirement.
- Total workers’ comp benefits paid were $58.9 billion in 2020, according to the most recent data from the National Academy of Social Insurance. That’s a 6% decrease from 2016, when $62.7 billion was paid for workers’ comp benefits.
Who Needs Workers’ Comp Insurance?
Most states require businesses to have workers’ comp insurance, even as part of small business insurance for operations with just one employee. Other states (such as Alabama and West Virginia) do not require workers’ comp if you have fewer than five employees.
Some states have exemptions for workers’ comp requirements based on the type of work. For example, in California, you aren’t required to have workers’ comp for domestic workers employed by parents or for volunteers who work for a non-profit recreational camp or ski patrol.
Check our guide to workers’ compensation laws by state to find out what’s required where you operate.
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What Does Workers’ Comp Insurance Cover?
Let’s take a closer look at the benefits covered by workers’ comp insurance.
Medical expenses including hospital visits, medications and emergency surgeries are all covered by workers’ compensation.
- Lost wages are partially covered when the employee needs time away from work to recover from a work-related illness or injury.
- Disability benefits are available if the injury caused a partial or permanent disability.
- Ongoing care costs, such as physical therapy, are covered by workers’ compensation.
- Death benefits typically include funeral costs and survivor benefits for the worker’s family.
Workers’ comp benefits are paid no matter who was at fault. And workers’ compensation laws typically prevent employees from suing their employers for a work-related injury or illness.
What Does Workers’ Compensation Insurance Not Cover?
Employees are covered for workers’ compensation regardless of the number of hours they work.
However, there are exclusions, which could result in a denied workers’ comp claim, including:
- Commuting: Traveling to and from work is typically excluded from workers’ comp coverage. A person may be covered if they’re in a company vehicle or don’t have a physical office, such as a traveling salesperson.
- Intoxication or substance abuse: Many states exclude workers’ compensation coverage if the injured person was intoxicated and that contributed to the injury.
- Workplace fight: If an injury happens during a fight with a colleague, workers’ compensation may not cover the injuries. One exception is if the fight was about work.
Benefits of Workers’ Comp Coverage
Workers’ comp benefits both your small business and your employees. Here are a few examples of the benefits of workers’ comp coverage.
- It reduces your out of pocket expenses. If a worker gets sick or ill while on the job, workers’ comp pays for their lost wages, medical expenses and other expenses, such as funeral costs. Without workers’ comp, you might have to pay out of pocket for these expenses.
- It covers your employees for extended absences. An accident or illness that results in an extended absence could be financially devastating for your employees. Workers’ comp covers partial lost wages and ongoing care costs such as physical therapy.
- Workers’ comp covers your employees no matter who is at fault. Mistakes happen in the workplace. Workers’ comp will cover your employees even if they’re at fault for the accident.
How Much Does Workers’ Compensation Cost?
Workers’ compensation insurance costs $542 per year, according to Insureon. That’s about $45 per month.
Workers’ compensation insurance costs are based on the job classifications of employees and these classifications reflect the riskiness of the job. For example, a construction worker or electrician would be considered high-risk jobs. Other high-risk jobs include police officers, firefighters, lumberjacks and telecommunications repair workers.
The payroll of the business and any past workers’ comp claims also impact your workers’ comp premium.
“If there is confusion about workers’ comp, it’s usually around how the premium is determined in part by the number of employees on the payroll,” says Andrew Dalton, assistant vice president for The Hartford’s small commercial workers’ compensation line of business. “Each year, state law typically requires every workers’ comp insurance company to perform an audit of the premium paid.”
“It’s important to keep in mind that this audit is required and it’s important to be certain that the business owner is accounting for their employees throughout the year,” Dalton says.
The audit looks at the past year’s payroll for the business and determines whether premiums were over- or under-collected, or just right. It also determines what the next year’s premium should be. This audit can result in the business owner getting a refund or credit or owing more on their workers’ comp premium.
Where to Buy Workers’ Compensation Insurance
Need to buy workers’ compensation insurance for your employees? You’ve got different options depending on your state: You might buy workers’ comp from private insurance companies or purchase it from a state-run agency—or you might have both options.
Private workers’ compensation insurance companies set their own prices and approve or reject customers. You may get a better price from a private insurer than from a state fund.
If you are not able to purchase the workers’ compensation coverage that you want from a private insurer, you may want to check out a state-funded program.
In a competitive, state-funded workers’ comp program, private insurers and state-funded programs compete for customers.
In monolithic, state-funded workers’ comp programs, businesses have no choice but to get workers’ compensation coverage from a state-funded program. Ohio, North Dakota, Washington and Wyoming are examples of states with monolithic state-funded programs for workers’ compensation.
How To File a Claim for Workers’ Compensation
The first step in filing a workers’ comp claim is for the employee to report their work-related illness or injury to the employer.
Next, the employer should notify the insurance provider and the state workers’ compensation board if required.
In addition, the employer will need to report severe workers’ comp injuries to the Occupational Safety and Health Administration.
Workers’ comp claims can be disputed if an employer does not believe the injury or illness was caused by work. And the employee may need to appear before a workers’ compensation board to make their case for receiving workers’ compensation benefits.
Risk Control for Workers’ Comp Claims
By working to control your business’s risk of workers’ comp claims, you can keep control of future premiums.
“There’s a lot that can help a business owner control their risk associated with employee injuries,” says Dalton. “You don’t want to leave these things to chance and you want to be certain you have safety protocols and procedures and that your business has taken steps to reduce the kinds of things that can cause injury.”
Training employees on workplace safety is a key approach to minimizing worker injuries and accidents. Many states offer workers’ compensation insurance discounts if the business implements a workplace safety program. This safety program could include:
- Written safety policies and safety rules
- Safety inspections
- Preventative maintenance
- Safety training
- First aid
Get Expert Help
“The best way to be certain you’ve got the right insurance for your business, including workers’ comp, is to speak with a licensed, independent agent,” says Dalton at The Hartford. “They work every day to understand what’s right for every kind of business that’s out there. Business owners have a lot to keep track of and insurance is one of those things that they need to consult an expert.”
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Workers' Compensation Insurance FAQ
Who pays for workers' comp?
Employers pay for workers’ compensation insurance either through a state program or a private insurance company. Employees do not contribute to this coverage.
Workers’ compensation pays for missed wages, medical treatment, disability leave and rehabilitation.
How long does workers' comp last?
States may limit the length of workers’ compensation payouts. These limits may be anywhere between three and seven years, depending on the state, according to The Hartford.
However, some states stop workers’ compensation payments when an employee turns 65.
Are workers' compensation benefits taxable?
Workers’ compensation payments and benefits aren’t taxable.
That said, if the injured person is receiving retirement benefits, Social Security Disability Insurance or Supplemental Security Income, the person may have to pay taxes on a portion of the benefits, according to The Hartford.
