What Workers Compensation Insurance Is All About:
It’s your job to keep employees safe at work. However, accidents happen. Sometimes employees get injured or become ill on the job, and that’s why we have Workers Compensation Insurance.
This insurance covers medical costs and lost wages, as well as things like rehabilitation or physical therapy. It’s mandatory in many states, and highly recommended for all employers.
Read on to find out more about this type of coverage and what your business should look for in a policy.
What Is Workers Compensation Insurance?
Often called “Workman’s Comp,” this insurance has been available in the U.S. since 1949. This type of insurance provides wage replacement and medical benefits to employees who are injured at work. In exchange, employees relinquish their right to sue their employer for negligence. Therefore, Workers Compensation Insurance protects employers from costly lawsuits, while also assuring employees that they are guaranteed some coverage in case of illness or injury on the job.
Workers Compensation Insurance is mandatory in most U.S. states, and laws requiring that businesses hold these policies are intended to eliminate the need for litigation. Employees who are injured or become disabled at work will not need to cover payment of their own medical bills, and will receive monetary compensation to cover loss of wages. This compensation might cover a portion of wages while they are out recovering from an injury, or it might last longer in situations where employees have suffered permanent physical damage.
Many states, however, offer an exception for businesses with a very small number of employees. For example, if you have three or less employees in Alabama, your business is not required to carry it. However, if you are based in Colorado, all public and private employers must provide coverage for their employees if one or more full or part-time persons are employed. In Illinois, the law is even more strictly worded: Workers Compensation Insurance is required in “every work situation. Additionally in some states, such as NY, failure to provide workers compensation results in strict and heavy fines applied by the state.
Some other common exemptions from mandated insurance are for agricultural employees, corporations or exempted members of limited liability companies or LLCs.
Do I Need Workers Compensation Insurance?
This type of insurance comes in handy if…
- You have employees
- There are occupational hazards or illnesses associated with your industry
- Your business is located in a state that makes it mandatory
Still not sure what you need?
CoverWallet's Insurance Checklist , you'll find a list of insurance types needed for your specific business or industry.
What Does Workers Compensation Insurance Cover?
At a High Level...
This type of insurance covers your employees when one of them becomes ill or injured on the job, regardless of who’s fault it was. Employees can receive reimbursement for medical costs, as well as collect a portion of their wages while out of work due to a work-related injury or illness. This coverage is important if an employee is injured in a work-related accident, as they won’t have to pay for their medical expenses out of their own pocket.
In addition to an employee’s medical bills and wage compensation, Workers Compensation Insurance almost always provides death benefits to the dependents of employees who are killed in work-related accidents or illnesses. In some states, laws also limit the amount an injured employee can recover from an employer, and eliminate the liability of co-workers in most accidents, protecting both employers and fellow workers.
Getting Into the Details...
Workers Compensation Insurance covers injuries that are sustained in the actual workplace, or anywhere the employee is acting in the “course and scope” of employment. In addition to accidents, many of these policies cover injuries or disabilities employees may sustain from events that occur while they are at work.
Depending on state statutes, this insurance will also cover certain illnesses and occupational diseases that employees suffer from due to their employment. In some cases, workers will be compensated for the effects of psychological stress caused by their job.
The legal definition of a work-related injury has expanded significantly in recent years. For example, employees who have been injured while playing on company-sponsored sports teams have been able to collect benefits.
Here are examples of some types of claims:
| TYPE OF CLAIM | DESCRIPTION | EXAMPLE |
|---|---|---|
| Accident/Injury | If an accident occurs on the job and an employee is injured, insurance will cover related medical expenses and a portion of lost wages. | Traffic accidents are some of the most common claims. For example, an employee could be injured in a car accident while using their vehicle for work. (Note: accidents that happen while an employee is commuting to or from work are not covered). |
| Occupational Illness | In some industries, employees are at risk of developing certain occupational hazards. Insurance should cover medical expenses, as well as a portion of wages while the employee is out of work, as long as there is a clear connection between the job and the illness. | For example, an office employee develops carpal tunnel due to the constant use of a computer. That's why someone who "just has an office employee" needs coverage. |
| Repetitive Stress Injury | Claims are common for injuries due to repetitive physical motions. Insurance will cover any rehabilitation or therapy an employee needs, as well as pay a portion of wages while the employee is taking time off to recover. | The most common form of repetitive stress injury is carpal tunnel syndrome, affecting all types of office workers. Another example is repeatedly lifting heavy boxes. |
| Disability | An employee is injured in an accident to the point where they won’t be able to return to work due to a disability. This insurance will cover their medical bills, as well as a portion of their wages moving forward. | For example, an employee is injured in a car accident while on the job and loses the use of one leg. They are unable to perform their job anymore due to a disability. |
You’ll Know It’s the Right Policy If It Covers:
- Employees’ medical expenses for illness and injury suffered due to on the job accidents
- Occupational illnesses
- Repetitive stress injuries
- Workplace violence
- Stress-related mental injuries, like PTSD
- Death benefits for employees’ dependents
- Rehabilitation services and retraining programs
What Does Workers Compensation Insurance Not Cover?
While it generally covers any injuries or illnesses that develop on the job, there are some exceptions. Workers may not be covered in these cases in some or all states:
- Self-inflicted injuries
- Injuries incurred while not on the job
- Injuries incurred as a result of conduct or actions that violate company policy
- Injuries that happen while an employee is committing a crime.
This insurance only covers injuries that happen on the job, so anything that happens to employees when they are off the clock or not performing official duties likely won’t fall under this policy. For example, if a employee is injured during their personal time, such as during a gym session or over the weekend when they’re not required to be working, they won’t be covered.
While some employees have argued to expand coverage because they are always working or thinking about work, courts have enforced common sense limits. For example, if your employee falls out of bed because they are having a work-related nightmare, their injuries will not be covered.
Workers Compensation Insurance covers injuries or illnesses until they become permanent and stationary. Then, employees may be entitled to permanent disability benefits and lifetime medical care.
General damages for pain and suffering, and punitive damages for employer negligence, are generally not available under this type of insurance claim. Negligence is generally not an issue in these cases.
Workers Compensation laws are designed to give employers immunity from liability above the amount provided by their policies. However, in some states, an employer can still be held liable for greater amounts if the claimant can prove they recklessly or intentionally caused them injury, harm or illness. In other states, while employers might be immune, third parties like subcontractors or machinery manufacturers may face liability.
It’s also important to note that Workers Compensation and State Disability Benefits are not the same things. State Disability Benefits are paid weekly when an employee is injured outside of work, but their injury prevents them from performing their work duties.
What Are the “Limits” on a Workers Compensation Insurance Policy?
There is no universal limit to the amount that can be paid to an injured employee. Instead, the amount is determined by the Workers Compensation Board in each state. The amount is usually determined by the employee’s salary and the severity of their injury or condition. For example, in the state of New York, an employee’s Workers Compensation Benefit would be calculated as two-thirds of their average weekly wage, subject to a state-determined maximum. That is in addition to medical bill payments.
However, employer liability coverage in Workers Compensation cases does have a limit. Basic policy limits required by law range from $100,000 per employee for bodily injury to $500,000. Since it’s easy to see how one or two big claims could exhaust the limits of liability, employers are frequently encouraged to purchase increased liability coverage for a nominal cost. For example, a 2 or 3 percent premium increase could boost coverage from $500,000 to $1 million.
How Much Does Workers Compensation Insurance Cost?
Just like most insurance policies, the cost will vary based on the nature of your business, its size, its risk factors and its location.
Typically, a small business owner with a few employees can expect to pay around $2,000 to $3,000 in Workers Compensation Insurance premiums annually. As an employers payroll increases, premiums will also increase.
It will naturally be more expensive to insure employees working on a particularly dangerous job where claims are frequent, such as construction. However, discounts are still available for businesses that implement work safety programs and enforce a drug free workplace. Premiums can also be reduced by purchasing a plan with a high deductible.
It’s highly recommended that you research the insurance laws in your state to find out of if you need coverage, and the requirements. As a small business owner, knowing the insurance laws of your state is essential to protecting yourself and your employees.
However, even if you aren’t mandated by law to carry a policy, it’s always better to be safe than sorry. Purchasing a policy now will save you headaches and even higher costs down the road. Plus, it’s the right thing to do to ensure your employees are taken care of if something happens to them on the job.