Across the United States, businesses of all sizes are required to buy workers compensation insurance. Each state has different requirements for employers, but the basic premise remains the same: employees are able to access benefits for medical treatment, lost wages, and disability if they suffer a work-related injury or illness. In turn, employees usually give up the right to sue their employer for their injury or illness.
For most business owners, purchasing workers compensation insurance is not an option; it is mandated by state law for all employers with more than a certain number of employees. Understanding the workers compensation insurance system can be helpful in choosing the insurance coverage that is right for your company, and in responding to claims as they arise.
The Establishment of Workers Compensation System
Workers compensation was established in the United States in the early 1900s, to address the problem of employees being injured in often highly dangerous work environments. Prior to workers compensation, employees who suffered a work-related injury would be required to file a lawsuit against their employer, which was a lengthy and expensive process that often resulted in workers receiving no benefits. Courts reached these results in a lawsuit because they concluded that the injury or illness was an expected part of the job, or that the worker had in some way contributed to his injury. Workers compensation laws sought to change that dynamic by providing a system where employees could be compensated for workplace injuries, regardless of fault. Employers also benefitted by gaining a measure of certainty when it came to their workers being injured on the job.
There are two general purposes of workers compensation insurance. First, it ensures that workers get both medical care and compensation for lost income for injuries or illnesses that they suffer while at work, regardless of who was at fault. Second, it protects employers from most lawsuits brought by employees who suffered a work-related illness or injury. The system achieves these goals because it provides guaranteed benefits to employees hurt on the job, regardless of who was at fault for the injury or illness. In exchange for no-fault access to benefits, workers give up the right to sue their employers for injuries and illnesses related to work, making workers compensation the exclusive remedy for employees hurt at work in most situations.
When it comes to the details of the workers compensation system, each state is different. Companies are governed by state law and regulations, which provide standards for the following aspects of workers compensation benefits:
- The type and amount of benefits employees can receive
- Which employees must be covered by the insurance
- Which injuries and illnesses are covered
- How impairments are assessed
- How medical treatment is provided
- How claims are handled
- How businesses obtain workers compensation insurance
- How disputes are resolved
Businesses that operate in multiple states may have to purchase different insurance and comply with different rules in each state. As a general rule, employers are required to purchase workers compensation insurance only for full and part-time employees, not for independent contractors and other non-employees.
How Workers Compensation Works
On its face, the workers compensation system is relatively straightforward: an employee is injured or becomes ill at work, and reports the injury or illness to his or her employer. A claim is filed with the workers compensation insurance carrier, and workers receive immediate access to either payment for medical treatment or access to medical care from a provider of the employer’s choosing. After a short waiting period of three to seven days, employees can then receive cash benefits for a portion of the wages they have lost as a result of their injuries or illness. In practice, however, there can be many complications that arise in a workers compensation claim, from the nature and extent of the injury to the employee’s ability to return to work.
Workers compensation provides coverage for work-related injuries or illnesses. This includes not only injuries that happen while an employee is physically at work, but also doing things that are related to work, such as delivering an item to a customer, traveling for business, or attending a social event that is related to work. If the injury or illness occurred within the course or scope of work of employment, it will likely be covered by workers compensation insurance. The system covers all types of injuries and illnesses, from falls and accidents to exposure to chemicals or injuries related to repetitive motion, such as carpal tunnel syndrome.
Importantly, workers compensation does not provide benefits for injuries that are outside of the scope of work, such as those that are caused by an employee’s drunkenness, violation of company policy, or self-inflicted injuries. There are also strict guidelines in place for reporting injuries; if an employee fails to report a workplace injury or illness to his employer within a prescribed period of time, then he or she may be barred from seeking benefits.
In most states, workers compensation provides several core benefits, which are primarily in the form of medical treatment and compensation for lost wages. A program may also provide vocational rehabilitation for employees so that they can return to work or work in a different position after an injury or illness. Employees may also be entitled to partial or full disability payments in the event that they cannot fully recover from their injury or illness. If an employee is killed at work, funeral costs are typically paid by workers compensation insurance, and survivors may be entitled to payment for their loved ones’ lost future earnings.
Advantages of the Workers Compensation System for Employers
For business owners, the primary benefit of the workers compensation system is that in most cases, it limits their legal liability for injuries and illnesses that their employees may suffer while at work. Because workers compensation is the exclusive remedy for most injured workers, it gives employers the certainty of knowing potential costs for a given year in the event that one of their employees is injured or becomes ill at work.
When an employer purchases workers compensation insurance, it usually involves two separate parts: workers compensation and employer’s liability coverage. The workers compensation policy will provide benefits to injured workers employed by the policyholder. There is no limit on the amount of benefits provided under this part of the policy; whether two workers are injured in a year or 100, the insurance company is obligated to pay benefits to the workers. This makes workers compensation a far more predictable form of compensating employees for their illnesses and injuries.
The second part of workers compensation policies, employer liability, provides additional coverage for employers. If an employee is injured or becomes ill in a manner that is not covered by workers compensation, it will cover both the cost of a legal defense against a lawsuit and the amount of a settlement or award for the employee. It typically also protects the employer against third-party claims. This part of the policy is subject to monetary limits.
The combination of these two separate parts of a workers compensation policy means that employers have nearly complete coverage for work-related illnesses and injuries. This allows employers to better plan their budgets and account for expenses for items such as employees who are injured while on the job.
How to Choose Workers Compensation Insurance
Because workers compensation insurance is mandatory for most employers, selecting coverage is a necessary part of doing business. Finding the right coverage can be a daunting task, however, particularly for business owners who are new to workers compensation or who operate in multiple states.
The most effective way to choose workers compensation is with the advice and assistance of a business insurance professional. This experienced individual can educate you on the workers compensation requirements that apply to your company, and offer insight into the most beneficial policies to protect your business. With the help of technology-based tools, a business insurance professional can work with you to review a variety of workers compensation insurance options and help you to pick the one that fits your company’s budget and needs.
In addition, a business insurance professional can offer advice on how to lower your workers compensation premiums through steps such as creating a workplace safety plan. Taking simple steps can help to reduce workers compensation claims and ultimately your premiums, including making appropriate protective gear available, offering training, and putting up warning signs Some states offer discounts or credits for workplace safety programs; a business insurance professional can advise you if these benefits are available to you, and if so, how you can take advantage of them.
If you need workers compensation insurance for your business, an insurance broker can save you both time and money by advising you on which type and amount of insurance you need, what your plan covers, and how you can reduce your workers compensation premiums. Contact The Business Benefits Group today to learn more about how he or she can help you buy suitable insurance for your workers compensation insurance needs.