Workers Compensation | Laws, Requirements & Insurance Explained

What Is Workers’ Compensation?

Workers’ compensation protects both employee and employer. Employers are responsible for maintaining a safe workplace and training employees on safety procedures. But accidents happen.

A workplace injury or contracted illness could be devastating to both employee and employer. Workers’ compensation was created to navigate these situations.

Workers’ compensation covers medical expenses and lost wages for employees when they’re injured on the job. In the United States, each state government regulates its own workers’ compensation system, and is responsible for rules, regulations and enforcement.

What’s Covered by a Workers' Compensation Policy

Workers’ compensation would apply when an employee is injured, killed or contracts an illness while conducting the duties of their job. Scenarios that would be covered:

A worker slips and falls in a retail shop or restaurant.
An employee is injured in a car accident running company errands.
An office assistant develops carpal tunnel from repetitive office work.
A worker contracts an illness from exposure to a chemical or toxin on the jobsite.

By law, workers’ compensation would require the employer or insurance company to pay for any medical care the employee needs to treat the injury, and to compensate the employee for a portion of wages they lose, if unable to return to work for a period of time.

While not mandated, the employer could also be found liable for other damages in court. The employee would need to show that the employer was negligent and created an unsafe workplace that resulted in injury. This is called Employer’s Liability.

Depending on individual state regulations, these costs might be paid out by the employer’s workers’ compensation insurance policy, or out of the employer’s own pocket.

What Workers' Comp Insurance Doesn't Cover

Workers’ compensation kicks in when an employee is injured on the job. The reverse helps illustrate what is not covered:

If you’re not an employee. Non-employees like vendors, partners or customers might get injured in a workplace, but they can’t file a work comp claim. Other coverage, like general liability insurance, might help compensate the injured person to pay for medical bills or damages.

The definition of an employee also determines coverage, and this differs by state. Full-time and part-time employees are generally covered. Family members, independent contractors, partners and other parties may or may not be considered employees. This distinction is decided by the state’s work comp governing body, and in some cases, by the courts.
If it’s not on the job. Being at work or on the clock is not necessarily enough for work comp to apply. Situations that can disqualify an employee for coverage include: ignoring clear safety rules, self-inflicted injuries, being under the influence of drugs or alcohol, etc. Again, the work comp system or a court may review and reject a workers’ compensation claim based on these details.

A workers’ compensation claim submitted to the state work comp division is similar to an insurance claim. The details of the situation are filed and reviewed. If accepted, the employer is required to pay for certain expenses and/or lost wages based on set rates. If the employer’s work comp policy applies, the insurance carrier would handle the claim and payment to the injured worker.

Who Decides?

Each state has its own workers’ compensation laws that outline work comp requirements. These include:

Where small business owners can shop for workers’ compensation insurance.
Which industries and businesses must carry coverage.
Who is considered an employee.

States often have one or several main agencies that oversee and administer workers’ comp:

Regulating body. A state board or division of workers’ compensation, which is responsible for communicating rules and regulations, resolving disputes and managing claims.
State fund. Some states have a state fund, or a government-run insurance carrier that offers work comp coverage and competes with the private market.
Assigned risk pool. Some states offer an assigned risk pool for higher-risk businesses. Either state-run or managed by a third party, the assigned risk pool places these businesses with a carrier so they can obtain coverage.

All branches of the state government also play a role in writing and interpreting the laws that govern the workers’ compensation system. They may also set limits on claims or take other measures to control costs, resolve disputes and determine how medical care is administered.

What Employers Need to Know About Workers’ Compensation

Any employer can be held liable for medical bills or other damages if an employee is injured. In most states employers are legally required to file a workers’ compensation claim within a certain period of time after the worker reports an injury.

Most employers are also required by state law to carry a current workers’ compensation policy, which provides coverage to their payroll.

If you have employees, state law may require you to carry workers’ compensation insurance. For example, all employees in California must be covered by a policy, while in Florida, employee limits depend on the employer's industry.

It’s important to note that just because you may not be legally required to carry a workers’ comp insurance policy doesn’t make you exempt from paying out workers’ comp claims. That’s why it’s advisable to obtain a policy even if you don’t legally have to, as having that protection could potentially save you in the long run.

See your state’s specific requirements and reevaluate your policy annually to reflect your current business operations and payroll. Whether or not you're required to carry insurance, all employers are obligated to report employee workplace injuries to the state workers' compensation body.

General Liability

Although not required, general liability is recommended as a basic insurance product for all businesses.

Unlike workers’ compensation, general liability insurance covers bodily injury and personal and advertising injury (such as libel or slander) to any third party as a result of interacting with your business, employees or business property. In other words, general liability does not include workers’ compensation.

General liability covers:

Bodily injury, such as a customer slipping and falling in your store
Property damage, such as an employee spilling a bucket of paint in the customer’s office
Personal and advertising injury, in the event of a defamation lawsuit

General liability policies don't cover:

Commercial auto accidents
Damage to your business or property
Employee discrimination lawsuits
Employee injuries
Intentional acts
Professional mistakes or faulty workmanship
Punitive damages

Keep in mind that just like workers’ compensation, general liability could save you money in the long run. Also, you may end up in a situation where a vendor or customer requires you to have a general liability policy, which is why it’s best to be prepared.

Employer’s Liability

In the event that an employee feels workers’ comp did not adequately cover medical bills or lost wages and that the employer was negligent, employer’s liability would provide coverage for the employer’s legal expenses.

One way to differentiate between workers’ compensation and employer’s liability is to look at the COVID-19 pandemic and how it relates to the workers’ comp system:

"Mandating additional safety measures [for COVID-19] does not impact workers’ compensation insurance coverage. However, employers that require employees to travel, work in-office, attend meetings, and other activities that could lead to exposure could present a case for employer liability, if the employee claims the infection is the result of employer negligence."

Workers' Compensation Compliance

Even with all proper protocols in place, accidents happen. Maintaining a safe workplace is the most effective way to save money on worker’s compensation costs.

Outline safety policies and procedures, and train employees on safety guidelines.
Address safety at regularly scheduled meetings.
Research different safety programs offered by OSHA and NIOSH.
Ask your insurance provider about accident and injury trends, and safety program resources.

Make sure you’re familiar with the rules within your state to make sure your business stays in compliance with workers’ compensation laws.

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Frequently Asked Questions: Workers Compensation

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What Employees Need to Know About Workers’ Compensation

Workers’ compensation protects employees by compensating them for workplace injuries, and incentivizing employers to provide safe working conditions.

If you have been injured on the job, please notify your employer immediately and seek medical attention.

Injured or ill workers may be eligible for the following benefits:

Medical care: Payment of medical bills to treat the injury or illness.
Vocational rehabilitation: Rehab to return worker to health and transition back to the workforce.
Disability: If the worker is unable to return to work after the injury, the worker may receive disability benefits.
Death benefits: In the event of an employee fatality, the policy pays out death benefits to the surviving family.
Income replacement: Wage replacement will differ depending on whether the disability is total or partial, temporary or permanent. The amount paid is often a percentage of the worker’s wages, and is determined by the state.

If you are injured on the job, seek medical attention immediately and notify your employer, so they can submit a workers’ compensation claim.

Return to Work

Return-to-work programs are important for both employer and employee. Returning an injured employee to work as soon as possible can improve recovery times, increase company productivity, boost morale and protect the employee's earning power.

A return-to-work program might focus on scheduling flexibility, such as working part-time until full-time duties can be resumed, telecommuting or working a modified schedule. Or, the employee might need to adjust the type of work they perform, temporarily or permanently. In this case, a return to work might include modified work responsibilities or offering reasonable accommodations to the employee, to help them perform at their best.

Constant communication and transitional responsibilities can gradually reintegrate the worker while healing. Your insurance carrier, state work comp authority and other organizations offer resources on return-to-work programs.