What is workers compensation insurance?

No matter how robust a company’s safety best practices, workplace accidents happen. Whether it is bodily harm from a fall or an illness due to a toxic chemical leakage, employee on-the-job injuries are costly to all involved. Workers compensation protects both employees and employers in these situations. Here’s what you need to know about this critical insurance.

Workers compensation covers medical costs, other critical expenses, and loss of income in the event an employee is injured on the job.

The insurance was developed for the protection of:

• Employees. Workers comp ensures that employees will not personally incur onerous medical or other costs or lose all wages if a work accident renders them unable to perform their duties.
• Employers. Providing workers comp to employees allows companies to avert most lawsuits that result from on-the-job injuries. 

Workers comp benefits can vary widely from state to state but in general they include:

• Medical care. This includes doctor and hospital visits, physical therapy, and prescriptions.
• Disability payments. If the employee cannot return to work, this replaces a percentage of the income lost.
• Vocational rehabilitation. Workers who cannot return to their prior occupation may be re-trained.
• Death benefits. These go to the spouse and minor children of someone who is killed on the job and cover burial or cremation expenses.

Employers obtain workers comp policies from their insurers, who can help to minimize exposure and optimize premium expenditures. Premium costs an vary widely as they are based on a number of factors:

• Employee risk level. Inherent dangers differ from job to job, which is reflected in the cost of insurance. For example, a 100-person steel-cutting plant would likely pay higher premiums than a 100-person accounting office. 
• Salaries. Because of the cost to compensate for lost wages, employee salary levels are factored into the premiums. 
• Employer risk rating. Good or bad, the company history of workers comp claims versus the state average (which is considered a reflection of employee safety record), affects the price of insurance.
• Costs of medical care. As expenses for doctors and hospitals rise, these stated obligations and limitations increasingly impact the cost of workers comp policies.

Workers comp is “no fault” – that is, even if the accident is from carelessness, the employee is entitled to benefits. There are exceptions— for example, many states don’t require workers compensation be paid if the injury took place while the employee was violating a company policy.

Secondary injuries that happen as a direct result of the initial workplace incident are also covered. However, workers comp doesn’t generally cover accidents that happen while an employee is commuting, stress-related ailments, or injuries that are self-inflicted.

The workers comp claims process typically proceeds in these steps:

• Employee reports the injury to their employer. Required paperwork is filled out.
• Employee obtains a medical determination. The employee may need to go through an approved provider to ascertain the extent of the injuries and the ability or inability to resume normal job function.
• Employer files a claim with their insurer. This details the incident and the injury.
• The insurer establishes benefit payments and pays the employee. Alternately, depending on the case, the insurer may reject the claim or negotiate for a settlement with the employee. 

In the U.S., nearly every state requires employers to carry workers comp insurance. It’s important to keep in mind that laws can vary widely as each state has its own workers compensation agency that oversees insurance rates, reimbursement requirements, exceptions that may expose a company to lawsuits and/or negate its obligations to an employee as well as other, often complex, regulations. Wondering about the laws in your state? Here is a list of the state workers compensation agencies.