How does workers' compensation work?
Most businesses are required by law to have workers’ comp insurance. In this guide, you’ll learn how it works, what it covers, and how it benefits you and your employees.
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.
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.
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:
Injuries often covered by workers’ comp insurance:
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.
In practice, there are two main ways that workers’ compensation grants benefits to employees who need to use it:
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.
Following a workplace injury, the injured employee is responsible for these next steps:
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:
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.
Like most insurance coverages, the cost of workers’ comp is determined by taking into consideration a variety of different factors, including:
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:
Now that you understand how workers’ comp works, make sure to get covered!