How does workers' comp work?

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 should still 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 is also a complex system that can be hard to understand. If you’re wondering what is workers’ comp and how does it work, you’ve come to the right place. This guide will break down all there is to know about the mechanics of workers’ comp insurance and the various ways it can impact your business.

How does workers’ comp work?

Before we dive into how workers’ comp works, let’s start with what it covers. Workers’ compensation covers your business due to expenses incurred by workers as a result of an injury while working.

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.

Workers’ compensation softens the blow by covering at least a portion of the costs.

But how does it work, exactly?

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 systems works in further detail.

The workers’ comp claims process

The most straightforward option—the one workers’ comp is designed for—involves employees filing a claim and recouping expenses from the insurance agency.

But let’s back up. The first part of this process is the unfortunate incident itself. In order to be eligible for workers’ comp benefits, an employee must fall victim to some form of work-related incident. For instance, a construction worker may have a heavy object dropped on his or her leg, or an office worker may develop carpal tunnel syndrome from too much time at the keyboard.

Once a workplace injury has been suffered, the process of getting workers’ comp benefits breaks down into the following 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 both short- and long-term medical treatment, as well as a portion of missed wages due to a work injury. Extreme cases (such as permanent disabilities) entail broader workers’ compensation benefits.

  4. Resuming work – Adhering to doctors’ orders and prescribed best practices, the employee will return to work either at a full or reduced schedule. In addition, the employer should take extra precautions to prevent further injury.

The claims process is the first option for employees seeking workers’ compensation benefits after a work injury. But, in the land of the litigious, it’s not the only way to have costs covered.

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.

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 settlement will be reached

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

The content on this page has been verified by
Terri Hitchcock, JD
Chief Insurance Officer, Thimble
Terri has 38 years of industry experience and knows a thing or two about insurance, so she reviewed and approved everything on this page.

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