What Is Workers’ Compensation?

Workers’ compensation is a form of insurance designed to protect both workers and employers in the event of on-the-job injuries. It provides compensation for lost wages, medical bills and other costs of work-related injuries in return for an employee relinquishing their right to sue. It is also referred to as workmen’s compensation, workmans comp or workers comp.

Workers’ Compensation Goals

Workers’ compensation presents an elegant solution to a complex problem. Employee injuries constitute an unknown amount of liability for any employer. In a related lawsuit, the employer might win and bear zero responsibility for the injured employee’s health care, lost wages and other associated costs. But if the employer loses, they may owe a large, even multimillion-dollar damages award to the employee.

In answer to this problem, state and federal governments began enacting workers’ comp insurance programs in the early 20th century. Employers were required to purchase a type of insurance that would provide coverage for all employee injuries, regardless of fault or negligence. In return, employees would forfeit their right to pursue a civil lawsuit against their employers. All at-work injuries and illnesses are covered, but employees cannot use them as grounds for a work injury lawsuit.

Though the system has evolved substantially since those early years, it still protects workers by providing medical care and partial wage replacement without the need to prove negligence. It also creates a predictable cost structure for employers to manage workplace injury and associated physical harm.

Goals of Workers' Compensation Programs
  • Supply prompt, sufficient benefits to employees injured on the job
  • Allow injured employees swift access to quality medical treatment
  • Provide these services at a manageable cost to the employer
  • Deliver all benefits through an efficient system for all parties
  • Fund the system through high-performing insurance processes

Source: The Workers’ Compensation Research Institute

Why Do We Need Workmen’s Compensation?

Before workmans’ comp insurance policies, injured employees faced an uphill battle in any attempt to secure compensation for medical bills or lost wages. Back then, workers were forced to seek such financial remediation through civil courts. The process could be prohibitively expensive and time-consuming for the average person, and it produced unpredictable results for employees and employers.

Employers would often claim an injured worker held some responsibility, knew about the risks of the job, and/or was harmed by another employee, effectively exempting the employer from liability. Together, these three defenses shut down most work injury lawsuits.

Even in cases where a worker won a lawsuit, he or she still bore the cost of litigation. This may have required the employee and their family to live without income for an undetermined time period, representing a substantial hardship. It also posed a significant detriment to future employment prospects, as the employer was not legally prevented from retaliatory termination in the face of a work injury lawsuit.

Of course, when employees were successful, employers sometimes faced jackpot verdicts. The entire environment made things very difficult for employees and employers, and that’s why workers compensation systems were established: Employees have coverage for all work-related injuries, illnesses, associated medical expenses and partial lost wages, and employers can budget for on-the-job accidents without accepting negligence or fearing enormous verdicts.

Workers’ Compensation System Overview

With the exception of a few federal programs, workmans comp systems are regulated and implemented at the state level. This means each system has its own unique set of rules, but most of them share five common elements.

Exclusive Remedy: Workers and their families have no other option to secure damages for work-related injuries, illnesses or death and cannot sue the employer for any covered events.

Insurance: Employers purchase policies through insurers and pay only the premiums. Insurers cover the costs of any benefits provided in fulfillment of the policy.

Benefits: Employees sustaining work injuries are entitled to insurer financed medical care and disability benefits (cash benefits) intended to partially replace lost wages in the event they are temporarily or permanently unable to work.

Rehabilitation & Return to Work: Workers comp systems aim to facilitate a return to full working capacity for all employees who become ill or sustain injuries at work.

Statutes of Limitations: Workers must file for workers compensation benefits within a specified amount of time from the initial injury or illness.

Types of Workers’ Compensation Systems

There are four kinds of workers compensation insurance systems:

  • Exclusive State Fund: The system is designed and administered by the state government, typically providing policies to any and all employers. Workman’s comp insurance is not available through any other provider.
  • Competitive State Fund: The state government offers workmans comp insurance but competes with private and/or self insurance policies.
  • Private Insurance: Workers’ comp policies are sold by private insurers.
  • Self Insurance: The employer reserves money to pay for any required benefits, and must typically be authorized by state officials to provide workers compensation coverage in this way.

State Workers' Compensation Systems

See Your State’s Workers' Compensation Structure
Private Insurance Competitive State Fund Exclusive State Fund
Alabama
Alaska
Arizona
Arkansas
Connecticut
Delaware
District of Columbia
Florida
Georgia
Illinois
Indiana
Iowa
Kansas
Maine
Massachusetts
Michigan
Minnesota
Mississippi
Nebraska
Nevada
New Hampshire
New Jersey
North Carolina
South Dakota
Tennessee
Vermont
Virginia
West Virginia
Wisconsin
California
Colorado
Hawaii
Idaho
Kentucky
Louisiana
Maryland
Missouri
Montana
New Mexico
New York
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
Texas
Utah
Ohio
North Dakota
Washington
Wyoming

The state of Texas allows employers to opt out of workers compensation, but employers who choose to do so lose their protection from work-injury related lawsuits. Oklahoma, South Carolina and Tennessee have all made moves in the direction of allowing employers to opt out, but the bills have either not passed or been thrown out by the state supreme court.

Workers’ Compensation Claim Eligibility

A number of factors determine who is eligible for workers compensation claims. Though the eligibility criteria seem straightforward, some situations may still leave certain individuals without workmans comp coverage. Some independent contractors, agricultural laborers, domestic employees, seasonal workers and undocumented employees may not qualify for benefits, depending on state laws.

Factors Determining Workers' Comp Eligibility

Are you an employee?
Workers’ comp only applies if you are an employee of the company where the incident occurred. Contract workers may not be considered employees who need to be covered by workers’ compensation.

Does your employer have workers compensation insurance?
Not all employers are required to have workers’ comp. Regulations vary based on state, usually by the number of workers that are employed at a business. The United States Department of Labor lists officials by state for more information on state requirements.

Is your injury or illness work-related?
Injury/illness doesn’t have to be at the actual workplace, but does need to be directly work-related. For example, it could happen when traveling for work. It also can happen gradually after repeated use or misuse in the workplace.

In addition to the employment situation, workmans comp insurers also consider the nature and circumstances of the injury when determining eligibility for coverage. The following situations may render an individual ineligible for workers’ compensation:

  • Injuries were self-inflicted and avoidable.
  • Injury-causing behavior was illegal or prohibited.
  • The injury did not happen on-the-job.
  • The iIndividual was under the influence at the time of injury.
  • The injured employee was traveling to or from work at the time of injury and not required to be in multiple locations or stay after hours.

What Does Workers’ Compensation Cover?

Workers’ compensation benefits cover medical expenses, wages lost (partially), disability benefits and survivor benefits related to any work injury or illness for an eligible employee. These benefits may go directly to the covered employee or to their surviving family member(s) in the event of a work-related death.

Medical Benefits: Covered employees do not have to use their own health insurance or share any costs for treatment of employment-related injuries or illnesses. All medical care is provided promptly and at the cost of the workers’ compensation insurance company.

Lost Wages: Injured workers receive cash benefits to partially replace wages lost due to their work-related injury or illness. They are often subject to a short waiting period to ensure minor injuries do not lead to claims.

Disability Benefits: If an employee cannot return to full working capacity after a work-related injury or illness, they can claim temporary or permanent disability. Most insurers use the American Medical Association’s Guides to the Evaluation of Permanent Impairment to determine whether the injured employee is partially or totally disabled.

Survivors’ Benefits: In most cases, the spouse or dependents of an employee who died on the job or as a result of work-related injuries, can receive cash benefits for their deceased loved one. The amount usually corresponds to what the employee would have received in the event of permanent disability. Benefits stop when the spouse remarries, or the dependents reach adulthood.

How Does Workers’ Compensation Work?

A typical workers compensation case follows the steps below:

  1. A work-related accident or illness occurs.
  2. If immediate medical care is required, emergency services should be contacted and allowed to provide such care.
  3. Employee and/or manager fills out and submits all required forms to employer and insurer, as required by state law and insurer guidelines.
  4. The insurer assesses the situation to determine which benefits apply to the injured worker.
  5. The claim is accepted or denied by the insurer within a set time period.
    1. If accepted, temporary benefits begin.
    2. If denied, the injured employee typically has to appeal within a certain time frame, or they lose the right to appeal.
  6. Accepted claims enter a management process in which the injured worker is assessed at prescribed intervals. Benefits are adjusted or terminated accordingly. For injuries leading to permanent disability, payments would be shifted into permanent status as a result of injury classification during this process.
  7. Once permanent disability is determined, or temporary disability ends (due to employee recovery), the employee or their surviving spouse is notified of claim closure.
    1. If the injured worker disagrees with the decision to close a claim as a result of losing partial disability status, they must file an appeal within the time frame set by state law and insurer guidelines.

Each milestone within the process has its own policies and deadlines, violation of which can lead to claim denial. Appeals are often handled by a workers’ compensation board or department. If your claim has been denied, you should speak with an experienced workers compensation lawyer today to maximize your chance of obtaining benefits.

Federal Workers’ Compensation Laws

The Federal Government has largely stayed out of workers compensation legislation, but there are a few laws governing certain types of employees nationally.

Federal Employment Compensation Act (FECA): Mandates medical coverage, partial wage replacement and survivor death benefits for federal employees.

Federal Employment Liability Act (FELA): Provides full, not partial, compensation to railroad workers who demonstrate the railroad was legally negligent in their work-related injury; applies only to individuals not otherwise covered by workmans comp

Merchant Marine Act: Extends FELA benefits to any American sailor

Longshore and Harbor Workers’ Compensation Act (LHWCA): Provides workers compensation type benefits for longshore workers, ship-repairers, shipbuilders, ship-breakers, harbor construction workers and any other employee in a traditional maritime occupation injured on or adjacent to American navigable waters; does not cover sailors

Black Lung Benefits Act: Provides medical coverage and standard monthly compensation to totally disabled coal miners or their surviving dependents

Energy Employees Occupational Illness Compensation Act: Provides medical coverage and lump sum payments for Department of Energy employees, or their survivors, whose illness was caused by radiation or other toxic substances encountered at work

Questions to Ask Your Workman’s Comp Attorney

  • Do I have to accept workers compensation benefits, or is it possible for me to file a personal injury lawsuit instead?
  • How long can I expect to receive benefits?
  • Will I receive more compensation by requesting a lump sum settlement instead of accepting the standard benefit payments?
  • How will my workers’ compensation benefits be affected by Social Security disability or retirement?
  • How many workers’ comp cases have you handled, and what fraction of them resulted in favorable outcomes?

Workers’ Compensation Terminology

Assumption of Risk Rule

Historical legal defense stating that if an employee knew a job or task presented risk and chose to do it anyway, the employee alone, not the employer, bore the responsibility and liability for any associated injuries

Contributory Negligence Rule

Historical legal defense holding that an employer could not be held responsible for any injuries or damages sustained by an employee if the employee held any blame for the incident

If an employer admitted to 99% of the negligence in an accident, assigning only 1% to the employee, the employee could not recover any damages according to the rule of contributory negligence.

Fellow Servant Rule

Historical legal defense stipulating that an employer could not be held responsible for injuries sustained by one employee and caused by another employee

If Employee A falls from her office chair as a result of Employee B removing all the screws from said office chair as a practical joke, the fellow servant rule meant that the employer could not be held liable for Employee A’s fractured spinal cord or paralysis, as they were caused by Employee B.

No-Fault Coverage

A type of insurance, like workers’ comp, that provides compensation for injuries sustained by a victim without assigning blame or liability to the party assumed to be responsible for the injuries

The Grand Bargain

Reference to the deal made in the creation of workers’ compensation insurance, guaranteeing coverage for all job-related injuries and illnesses for employees in return for giving up their right to pursue civil litigation against employers