Workers’ compensation, also known as workers’ comp or workmans’ comp, is a vital form of insurance for any business with ongoing workers or employees. While not every single business is legally required to have it, the vast majority are (should they have employees and live in a state that mandates it).

Even if you don’t need to have it from a legal perspective, you’re encouraged to consider carrying workers’ compensation insurance to protect your employees—and your bottom line. After all, your team is what keeps your business running.

But as important as it is, workers’ comp can be hard to understand. If you’re wondering what workers’ comp insurance is and how it works, you’ve come to the right place. This guide will break down the mechanics of workers’ comp insurance and the various ways it can impact your business.

How does workers’ comp work?

Workers’ comp provides financial coverage to your employees who suffer a work-related injury or illness. Workers’ comp benefits can help cover medical expenses, replace lost wages or even cover the cost of new vocational training should your employee no longer be able to perform their previous work.

Workers’ compensation insurance provides benefits to employees and employers alike.

  • For employees, workers’ comp provides a valuable financial safety net in the event of a costly workplace incident. It allows them to focus on healing and restoring their physical condition without the added stress of worrying about expenses.
  • For employers, workers’ comp provides protection against liability which could be catastrophic to a business. If one of your employees suffers a serious injury on the job and you don’t have workers’ comp insurance, you could end up having to pay medical costs and lost wages out of pocket (not to mention any state fines for not having insurance coverage).

What does workers’ comp cover?

When a worker suffers an accident or exacerbates a health condition because of a workplace injury, he or she may experience financial consequences as a result.

Doctor visits and medication are expensive, especially as they compound over time. Plus, losing expected wages takes a situation from bad to worse for an impacted worker. Because an employee’s physical health and livelihood are so intertwined, workers’ comp covers a myriad of expenses, including:

  • Medical expenses. If your employee’s work-related incident is significant enough to warrant a workers’ comp claim, chances are there are medical expenses involved. Emergency room visits, surgeries, medical prescriptions and other medical expenses related to a workplace injury may be covered by workers’ comp.
  • Ongoing care. Over time, employees may develop chronic conditions as a result of their occupation that require ongoing treatment. Physical therapy for a long-term back injury or carpal tunnel syndrome is an example of ongoing care.
  • Lost wages. After his or her workplace incident, your employee may be out of work for several weeks or months, leading to potential financial trauma. Workers’ comp can cover your employee’s lost wages so they can focus on improving their physical health.
  • Funeral expenses. If the unthinkable happens and one of your employees passes away due to a work-related incident, workers’ comp can cover funeral costs and provide other death benefits to the employee’s family.

Injuries often covered by workers’ comp insurance:

  • Repetitive stress (back) injuries
  • Carpal tunnel syndrome
  • Sprains and fractures from slips or falls
  • Injuries sustained in work-related car accidents
  • Illnesses caused by environmental factors sustained at the workplace

Note that some employees may be ineligible for workers’ comp benefits based on the details of the incidents in question. If an employee was found to be consuming alcohol or other intoxicating substances, their claim may be rejected. Likewise, they might lose benefits if they were found to be disregarding the law or company policy during the time of the incident.

The workers’ comp process

In practice, there are two main ways that workers’ compensation grants benefits to employees who need to use it:

  • Through approved claims
  • As a result of settlements

Let’s discuss how each of these works in further detail.

The most straightforward option—the one workers’ comp is designed for—involves employees filing a claim.

How to file a workers’ comp claim

Following a workplace injury, the injured employee is responsible for these next steps:

  1. Seeking out healthcare – The employee must seek out healthcare in a timely manner respective to the incident that caused injury. Delays can pose risks to both successful recovery and eligibility for medical benefits. Doctors’ or medical professionals’ reports are used to substantiate the insurance claim for the injured worker.
  2. Filing the claim itself – Once the employee has received medical attention for the work-induced condition, the employer must provide all relevant filing information to the employee. The employee themselves must file a claim with the insurance carrier, and the exact paperwork required can vary by state.
  3. Receiving benefits – If the insurance company determines that the employee is eligible, he or she will receive financial benefits to cover bills for medical treatment, as well as a portion of missed wages due to a work injury.
  4. Resuming work – Adhering to doctors’ orders, and in collaboration with a disability caseworker or claims adjuster, a previously injured employee may return to work in their prior role or in a new role, at either a full or reduced schedule.

Workers’ comp settlements

In some cases, the employee and/or the employer may determine that a settlement is in either or both parties’ best interest. In this case, a claim is filed by the worker, but the insurer’s initial offering is passed up in favor of potentially greater workers’ compensation coverage.

A settlement most often entails the employee suing the insurer, the employer, or some other combination of parties for more coverage than was initially offered. The settlement will result in one of three outcomes:

  • A mistrial
  • A lump sum payment
  • A negotiated payment plan

This is the major benefit of workers’ compensation coverage for the employer. In the event of a settlement, workers’ comp insurance helps protect the employer from additional costs associated with the legal proceedings, as well as the eventual payment to the employee.

As you can see, workers’ comp is a complex area of insurance. But it’s a must-have for your business, plain and simple.

How much does workers’ comp insurance cost?

Like most insurance coverages, the cost of workers’ comp is determined by taking into consideration a variety of different factors, including:

  • The state in which your business in located
  • How many employees you have
  • The size of your payroll
  • Your industry
  • Any previous workers’ comp claims your business has filed

Workers’ comp, simplified

When it comes to a workers’ comp policy, the best-case scenario is never having to use it. In a perfect world, accidents would never happen, and workers would never get hurt. In the real world, accidents do happen, and it’s important to know how your insurance can help handle them.

Thankfully, filing for workers’ comp is a relatively straightforward process:

  • An employee who is hurt must seek out healthcare as soon as possible
  • Then, the employee files a workers’ comp claim with your insurer
  • The insurer will determine whether the employee qualifies
  • Either the insurer’s offer will suffice, or a lawsuit might be filed and a settlement reached

Now that you understand how workers’ comp works, make sure to get covered!