If you’re a business owner and are considering hiring people, then you must have heard of workers compensation insurance. So, if you’re wondering what is workers compensation and how does it work, this article is for you.

What is workers compensation insurance

Workers’ Compensation insurance is a state regulated type of business insurance that provides benefits to employees in case of work-related injuries or illness. This type of insurance helps pay for medical care, wages from lost work time and much more.

Workers compensation insurance is often referred to as “workers comp” or “workmans comp”.

Is it mandatory?

This really depends on your field or industry, and also on the state you’re in. State laws are diverse when it comes to workers compensation. While in California it is a criminal offense for an employer not to offer workers compensation insurance to its employees, Texas doesn’t require most private employers to offer it.

Although it’s not always required by law, workers compensation insurance is a necessary tool if you want to protect your business and your employees.

What does workers compensation insurance cover?

Generally, workers compensation insurance covers these types of expenses:

Medical expenses

Medical expenses (examinations, treatments, rehabilitation) are paid for if your employee is victim of a work-related accident or illness.

Ongoing care

Some work-related injuries or illnesses take more than a one-time treatment to heal. The employee may need ongoing care like physical therapy, which workers compensation insurance covers.

Lost wages

Workers’ compensation pays for the wages that your employee would have earned if he/she had been working, during the time he/she is incapacitated by a work-related accident or illness.

Disability

Some work-related injuries or illnesses may temporarily or permanently disable your employee. They may not be able to return to work for a while, or ever. Workers’ compensation covers the cost of their medical bills for treating disability, and some of the lost wages.

Burial costs

Workers compensation insurance covers these costs if your employee dies because of a work-related accident or illness.

Death benefits

Death benefits would help your employee’s family if your employee dies because of a work related accident or illness.

We need to mention here that the injury or illness doesn’t necessarily have to happen at the workplace in order to be covered by workers’ compensation. The coverage works whenever the injury or illness is sustained in the course and scope of employment and while carrying the employer’s business. Some examples are injuries that happen during work-related travel or social functions.

What does workers compensation insurance not cover?

Workers’ comp doesn’t cover for all work-related injuries or illnesses. If the injuries are caused by the employee being in any way intoxicated on the job, workers compensation will not provide coverage. The same applies if the injuries were self-inflicted (such as if the employee starts a fight) or caused by the employee’s negligence.

Workers compensation usually excludes some categories of workers such as:

• Farm workers
• Domestic employees
• Seasonal or casual workers

State-regulated workers’ compensation insurance also excepts federal government employees from coverage. Federal workers’ compensation insurance covers them instead.

How does workers compensation insurance work?

First of all, we need to say that if you provide workers compensation insurance for your employees, one of the greatest benefits is that, as a business, you have immunity from most lawsuits by injured employees. While covered by a workers compensation policy, the employee agrees to not sue your business for the injury, and to accept payments made by your insurance instead.

This means that if you don’t offer workers compensation insurance to your employees, your business could be forced to pay high damage awards if an injured employee can prove in court that the injury was due to your negligence as an employer.

Each state has laws governing workers’ compensation insurance. For example, in Texas, the Texas Workers’ Compensation Act regulates workers’ compensation insurance. The regulatory entity for workers compensation insurance is your state’s Department of Insurance.

When considering purchasing workers comp insurance for your employee, make sure you research the requirements and regulations that are specific to your type of business, industry, and number of employees. For example, some states require you to purchase workers’ compensation insurance if your company has more than a certain number of employees. These states are Alabama, Arkansas, Florida, Georgia, Mississippi, Missouri, New Mexico, North Carolina, Rhode Island, South Carolina, Virginia, and Wisconsin.

The claim process

Workers’ compensation insurance claims work slightly different from state to state, but in general there are a few things you need to know in order to manage them correctly.

• Make sure your employees notify you about the injury or illness as soon as possible. In most states there is a time limit within which your employee can notify you about the injury after it happened. Usually, this time limit is between 30 and 90 days.
• Make sure the injured employee gets immediate medical care.
• Start the claim process as soon as possible after the injury or illness has happened. Your insurance company and state laws will most likely have a time limit within which you can file the claim after the injury or illness has happened.
• You need to submit the claim by contacting your workers compensation provider. Depending on your state, you may need to notify the state-run workers’ comp board.
• Upon receiving a claim, the insurance company will review it and then approve or deny the benefits.
• After approval of benefits, your employee will receive them.

How much does workers compensation insurance cost?

The cost of workers’ compensation insurance for employers varies by state. As an employer, workers’ compensation may cost you as little as $1 per $100 of payroll if you’re in Oregon, up to $1.56 per $100 of payroll if you’re in California.

Differences in workers’ compensation cost come from:

• Workers’ comp state rules
• Different medical fee schedules
• The ability to shop around to get coverage vs having to get coverage through state fund workers comp
• The level of risk of the job. Some high-risk jobs with expensive workers’ comp rates are: electricians, firefighters, lumberjacks, construction equipment operators, police officers, and telecommunication repair workers.

How to choose the best workers’ compensation coverage for your business

So, we answered the question of what is workers compensation and how does it work. Now let’s see how you can choose the best coverage for your business. There isn’t a big secret here. Your first step is to research your state laws and see what they require for your type of business. Then, you should start shopping around. The easiest way to do this is by working with an independent insurance agency that sells business insurance. They can help you get quotes from a multitude of insurance companies and make sure you get the best coverage for your type of business, at the best rates.

If you have further questions about workers’ compensation insurance, make sure you drop us a line in the comments or a message, and we’ll be happy to help!

Arnulfo Gonzalez

With over 12 years of experience in the insurance industry and as a tax professional, Arnulfo has prepared over 25,000 personal tax returns and manages taxes for companies with over 600 employees. Having sold thousands of policies, Arnulfo is striving to change the insurance industry one client at a time, all while maintaining great customer service.