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What is workers' compensation?

Workers’ compensation insurance offers benefits, including wage replacement and medical care payments, to workers with injuries or illnesses related to their jobs. It also provides benefits to family members if employees die due to their injury or illness.

Workers’ compensation is important insurance coverage for both employers and employees because:

  • It can provide benefits to an injured or ill worker without having to go to court 
  • It helps protect a company from a lawsuit that could damage it financially
  • It’s a “no-fault” system; neither the employee nor employer must be found legally “at fault” for the insurance to pay out benefits

Most employees are covered by their employers’ workers’ compensation insurance, and most businesses purchase workers’ compensation through private insurance companies.

The three key parts of workers’ compensation are the types of policies available to an employer, the benefits the worker receives, and how the coverage is paid for.

How does workers’ comp work?

  1. An employer pays payments to an insurance provider
  2. An employee gets injured, sick, or disabled because of their work or job
  3. A claim is made to the insurance company
  4. Benefits are paid to the employee for lost salary or medical bills from the insurance company

While the workers’ comp process may seem simple, there are several factors that affect whether a claim is paid out. So, it’s important to understand the specific policy terms. Some factors include:  

  • Bodily injury location
  • Injury severity
  • Recovery duration
  • Potential return to work
  • Policy type
  • Worker’s job qualifications

Workers’ comp examples

What’s covered by workers’ compensation insurance isn’t always obvious because workplaces and work duties vary. Some incidents that may be covered by workers’
compensation include:

  • An employee is injured while driving a company car for work
  • A remote worker sustains a job-related injury away from company property
  • A worker catches an illness while handling hazardous job-related materials offsite

There are many variables. What is covered in one state may not be covered in another.

What workers’ compensation covers

Generally, workers’ compensation plans will pay for the expenses related to the covered accident, injury, or illness. Some examples include:

  • Medical fees associated with the injury sustained while working
  • Ongoing medical treatment, such as physical therapy
  • Wages lost while away from work
  • Disability benefits for a full or partial disability
  • Death and funeral services to the named beneficiary

Is workers’ compensation required?

Generally, yes. All states except Texas and Wyoming require that businesses with employees have workers’ compensation insurance. However, companies in these two states may still need workers’ compensation due to: 

  • Federal requirements for specific industries
  • Business contract requirements

Workers’ compensation requirements by state

In the U.S., workers’ compensation is primarily regulated at the state level. Therefore, workers’ compensation laws, benefits, requirements, and penalties for not purchasing workers’ compensation insurance are different from state to state—often significantly.

In most states, companies can purchase workers’ compensation insurance from any private insurer, subject to state requirements.

If you have specific questions about workers’ compensation requirements for your state, contact the U.S. Department of Labor.

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What is the cost of workers’ compensation?

The cost of workers’ compensation varies by policy rate and employees' salary. Here's an example to help you understand how the cost of workers' comp is calculated:

Generally, insurance providers start with a base rate (for example, $.30 per $100 in payroll). If a business pays an employee $40,000, the starting premium for that employee would be $120.

A company’s base rate can vary and is affected by multiple factors:

  • Worker tasks and jobs
  • Industry risks
  • Claims history
  • State requirements
  • Policy types

Who pays for workers’ comp?

Most employees are covered by their employers’ workers’ compensation insurance. And most businesses purchase workers’ compensation through insurance companies.

What are types of workers’ compensation?

There are different types of workers’ compensation benefits, such as wage replacement, disability benefits, or payments for medical treatment costs, but there are also different types of workers’ comp plans or policies.

Plans are categorized by features that can be complex but generally don’t affect the benefits awarded to employees.

From the employers’ perspective, however, understanding what types of plans are available—or required—can be important for complying with state law and controlling costs, among other reasons.

Workers’ compensation policy types

Workers' compensation policy types and plans can vary depending on who provides the coverage and how the coverage is structured.

Depending on the industry, state, and laws, there are several sources of insurance:

Policy types can also vary depending on how they’re structured:

How do you file a workers’ compensation claim?

Filing a claim for workers’ compensation is not the same as filing a claim for other types of insurance.  Because workers’ compensation insurance is carried by the employer and covers injuries and illnesses affecting employees, the process for filing and managing a workers’ compensation claim involves multiple parties.

  1. Before filing a claim:

    An employer pays an insurance company for a workers’ compensation plan.

  2. After an accident or illness occurs:

    Once safety concerns are addressed and proper medical attention is underway, the supervisor should help determine the appropriate course of action. They should also complete an injury or illness report with the help of the employee. The supervisor should also communicate with the employee about workers’ compensation procedures.

  3. Reporting a workers’ compensation claim:

    The company will file the accident or illness report with its insurance provider.

  4. Managing a claim, recovery, and returning to work:

    The supervisor, employee, insurance provider, and medical professionals will communicate to ensure appropriate benefits and the affected employee’s possible return-to-work timeline.

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At Sentry, our safety team and available resources can help you reduce your risk of workers’ compensation claims.

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Learn more about workers’ compensation

Understanding how workers’ compensation works—and what type of benefits are available or who pays for them—is a complex conversation. Each case requires individualized attention and consideration, as many factors depend on which state’s rules apply, among other variables.

That’s why we’re here to help employers and their teams fully understand what they need to know about workers’ compensation and how to get a plan that meets their unique needs.

You can prepare for a personalized conversation about your workers’ compensation goals, budget, and requirements by exploring the wide variety of workers’ compensation plan types we offer.

Workers’ compensation FAQs

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An in-depth look at how workers’ compensation works

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