Who Pays for Workers Compensation?

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What is Workers Compensation?

Workers Compensation is a type of insurance that employers purchase for themselves and their employees that protects both parties involved in a work relationship. In this employer-employee relationship, employees exchange their ability to sue their employer in the event of an injury for access to compensation and benefits.

Compensation and benefits come in various forms including wage replacement, medical treatment, rehabilitation services and disability leave. Wage replacement covers any wages lost by employees who must take time off to recover from an injury. If they seek out medical treatment then they will be covered for the costs associated. The same is true for rehabilitation and, under more serious circumstances, disability leave. Workers Compensation Insurance is mandatory for companies with a minimum number of employees in 49 of 50 states, but the minimum number changes by state. You’ll almost always require Workers Compensation if you employ 3-4 people, but it’s critical to check your state’s laws as you may need Workers Comp coverage even if you’re a sole proprietor. The only state that does not broadly require Workers Compensation Insurance is Texas, however it is required under certain circumstances.

Read on to learn more about who pays for Workers Compensation.

Who Pays for Workers Compensation?

Generally, an employer pays a premium to either a state-run insurance program or insurance company for Workers Compensation Insurance. A premium is a percentage of a total amount of coverage which would be available for employees who hurt themselves on the job and need to take time off work or seek out medical treatment.

State-Run Insurance Programs

State-run insurance programs are administered by an individual state’s department of commerce, industrial relations or labor and are often chosen by employers with less than ten employees or those working in industries where injuries in the workplace are uncommon. For employers that have opted to be a part of a state-run insurance program, one of the aforementioned departments will pay out Workers Compensation to employees in the event of an injury. In this way, these departments take on a similar role to insurance companies in which the employer pays a premium and a third party pays out compensation when an injury occurs.

State-run insurance programs have often been created with the intention of keeping the costs of private insurance down by creating competition. Therefore, an employer with fewer than ten employees may choose a state-run insurance program as they do not need extensive coverage. In the event that an employer has been a part of several incidents or is in a high risk industry and private insurers will no longer provide them with coverage for an affordable price, enrolling in a state-run insurance program may prove to be a helpful option.

Still not sure what you need?

Head on over to CoverWallet’s Insurance Checklist. There you’ll find a list of insurance types needed for your industry.

Insurance Companies

Similar to state-run insurance programs, employers will often pay a premium to an insurance company to provide Workers Compensation Insurance to their employees. An employer may choose a private insurance company over a state-run insurance program as its services may be more comprehensive and provide greater coverage. When an employer pays a premium to an insurance company, they are able to protect themselves by ensuring that employees are not able to sue them in the event of personal injury. Additionally, employees are able to access certain benefits and compensation.