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 also helps employers—who pay for workers’ compensation insurance—by providing some protection against lawsuits.
Workers’ compensation is an important tool for both employers and employees because:
Most employees are covered by their employers’ workers’ compensation insurance, and most businesses purchase that workers’ compensation through private insurance companies.
Before workers’ compensation insurance existed, any injury or illness on the job could be disastrous for the employee and the company. The presence of workers’ compensation benefits employees, employers, and society.
In the U.S., workers’ compensation is driven by a patchwork of state and national legislation, each developed over time. New state and federal laws continue to make small changes to the workers’ compensation environment.
While the general concept of workers’ compensation is simple, it’s challenging to describe how the specifics apply to any given case because situations differ.
The unique nature of each injury or illness and the circumstances of the worker and their position can affect workers’ compensation amounts and outcomes. Individual cases will often be more different than similar. Factors include:
Jurisdiction is a major factor. In the U.S., while some industries are governed at the federal level, each state regulates how workers’ compensation insurance operates for most companies and workers. This makes the workers’ compensation environment complex on the basis of location alone.
Generally, yes. All states except Texas and Wyoming mandate that businesses with employees have workers’ compensation insurance. Companies operating in these states may still need workers’ compensation insurance if they have employees working in other states.
Even in states that don’t require workers’ compensation insurance, some companies may need workers’ compensation because they operate in industries that fall under federal workers’ compensation requirements.
Additionally, companies may need workers’ compensation insurance to meet stipulations in a business contract.
The self-funded option is an available exception when, subject to certain requirements, a business can cover the cost of workplace incidents without using insurance.
Learn more about self-insured plans and other workers’ compensation plan types below.
Because workers’ compensation is primarily regulated at the state level in the United States, we operate in a system where specific information about workers’ compensation laws, benefits, requirements, and penalties for not purchasing workers’ compensation insurance differ—often significantly—by state.
In most states, companies can purchase workers’ compensation insurance from any private insurer, subject to state requirements.
Some states have their own state-run workers’ compensation funds:
Because the workers’ compensation environment depends on what state you’re in, companies must account for numerous differences.
Take Texas, which as previously mentioned doesn’t mandate workers’ compensation insurance for all private companies. When a company operating in Texas must have workers’ compensation insurance for other reasons—such as contract stipulations or having employees working out of state—Texas does require that the company's insurance carrier must be licensed by the Texas Department of Insurance.
This is just one example. It’s essential to understand that there may be additional fine print when a company needs to buy workers’ compensation in any given state. Visit the U.S. Department of Labor’s website for state workers’ compensation contact information.
Workers’ compensation provides wage replacement and medical benefits if an employee becomes injured, ill, or disabled due to an incident that happened in the course and scope of employment. Benefits are paid after filing a claim, paid out by the workers’ compensation plan. In exchange for payments made by the employer to the insurance provider, workers’ compensation helps simplify the process and limit legal battles. Key parts of workers’ compensation are the benefits the worker receives, the types of policies available to the employer, and how the coverage is paid for.
While the broad outline of what happens after an incident is generally the same in most workers’ compensation environments, remember that state-by-state and other differences can come into play. Here’s a typical sequence of events:
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:
Again, many variables apply. What is covered in one state jurisdiction may not be covered in another.
Generally, workers’ compensation plans will pay benefit expenses related to the covered accident, injury, or illness. Workers’ compensation benefits include payments for:
Medical treatment
If an employee becomes hurt on the job, workers’ compensation will provide that employee with the costs needed to cover the medical fees associated with that injury.
Rehabilitation
If an employee requires care while recovering from an injury sustained on the job, workers’ compensation will help pay for ongoing medical treatment such as physical therapy.
Disability benefits
If an employee has a full or partial disability directly resulting from their employment, workers’ compensation will help pay disability benefits.
Death and funeral services
In the unfortunate event an employee dies due to a work-related incident, workers’ compensation will help pay death benefits to the named beneficiary, including funeral costs.
If asked about types of workers’ compensation, many people would describe the types of benefits injured workers may receive, such as wage replacement, disability benefits, or payments for medical treatment costs, as outlined above.
However, these benefits and coverages are generally included in any workers’ compensation plan, regardless of the type of plan. It’s important to understand the distinction between types of benefits or coverages versus types of plans.
The confusion often arises from the fact that plan types vary and are often described by aspects and features that can be complex, overlapping, and broken down into subtypes that, from the workers’ perspective, don’t affect benefits much.
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. Most differences in type are source based or structurally based.
Plan types can vary by source. Based on where a business is located and certain industries, state workers’ compensation laws and federal workers’ compensation laws can define what provider-based type of policy a company can choose:
State programs
State workers’ compensation programs, which can be privatized and can also be monopolistic or competitive
Federal programs
Federal workers’ compensation programs, which mostly apply to federal workers or workers in specific industries
Plan types can also vary by how they’re structured. In order of complexity, guaranteed cost, loss-sensitive, and self-funded plans provide a spectrum of options.
Guaranteed cost workers’ compensation plans resemble most other kinds of insurance, offering:
Loss-sensitive workers’ compensation plans come in many varieties:
Self-funded workers’ compensation plans, also known as self-insurance plans, are a sophisticated option for companies with substantial resources and complex insurance risks:
Most businesses have choices for picking a workers’ compensation plan type that meets state requirements and works for them and their employees.
Small businesses
Small businesses often choose guaranteed cost workers’ compensation plans.
Mid-sized businesses
Mid-sized businesses may opt for a hybrid workers’ compensation plan with loss-sensitive components.
The cost of workers’ compensation varies, though it begins with a calculation.
Generally, insurance providers start with a base rate (for example, $.30 per $100 in payroll). If a business pays an employee $40,000 in payroll, the starting premium for that employee would be $120. Base rates vary. Workers whose job tasks make them less likely to become injured or ill on the job have lower rates per $100 in payroll. Each state uses a specific source for these ratings.
The insurance provider then applies carefully researched rate factors, modifying the base rate. A factor greater than 1 raises the rate. A factor lower than 1 lowers the rate. The net rate is a result of all factors multiplied together. Other costs may come into play. Workers’ compensation rate factors and other costs are based on information such as:
Workers such as electricians, telecommunication repair workers, and lumberjacks typically have higher base rates and rate modifiers because of the increased likelihood and/or scale of incidents.
Premiums for companies in high-risk industries are higher. Some states use the National Council on Compensation Insurance (NCCI) to create a pool of funds that shares liability between the state and the employer for high-risk professions.
Companies with a history of more workers’ compensation costs generally pay more to cover their greater risks.
Each state’s requirements affect the premiums for workers’ compensation within it. Additionally, state requirements can influence competition (or remove it, in the case of state-run monopolistic plans), which can also affect premiums.
How policies are paid for and administered can affect premiums. For example, self-funded plans can lower plan costs but raise the potential cost of risk.
Accuracy is vital during the underwriting process. If an insurance company is uncertain about the level of risk involved at your company, it may factor that uncertainty into your risk of claims, leading to potentially higher premiums.
At Sentry, we believe in the power of conversation and getting to know our customers to explore possible solutions. The better we understand your goals and risks, the more we can offer options to protect your goals and mitigate your risks. This can lower the claims history factor.
Underwriters look at claims histories and how companies manage their risk of on-the-job injuries or illness—and their severity—when determining the cost of a workers’ compensation insurance policy. Thus, employers do have some ways to control costs:
Build a safety program
A successful safety program—incorporating training, monitoring, and reporting—can help reduce workers’ compensation costs for employers.
Build a culture of safety
Organizations committed to safety, making it a priority at all levels without exception, can often reduce risk.
Train effectively
Workers who know how to perform tasks and use equipment correctly can lower their risk of injury or illness.
Establish a return-to-work program
In our experience, the longer a worker is off the job, the less likely they’ll return to their prior level of performance and job satisfaction. Alternative work can be an option in some situations.
At Sentry, our safety team and available resources can help you reduce your risk of workers’ compensation claims.
Contact usFiling a claim for workers’ compensation is often dissimilar to filing a claim for other types of insurance, such as insurance that covers property damage. Because workers’ compensation insurance is carried by the employer and covers injuries and illnesses affecting the employee, the process for filing and managing a workers’ compensation claim involves multiple parties.
Workers’ compensation does not pay a full salary. However, employees are entitled to a certain percentage of what would have been their regular gross wage. Amounts may differ with minimums and maximums varying by state. Tax implications and company benefits may also affect benefit amounts.
Yes, employees can still work—and receive pay or salary—while receiving workers’ compensation benefits for medical treatment, rehab, or disability. These benefits are independent of the employee’s ability to work, meaning that even if an employee is able to quickly return to their position, the costs for an initial hospital visit and ensuing medical treatment are still covered.
This question usually arises when people think of being “on workers’ compensation” as receiving ongoing payments as a wage replacement benefit. It would be more accurate to ask if a worker could receive wage replacement through workers’ compensation, even if they continue to work.
While it’s much more common for an employee to receive wage replacement only to compensate for lost hours or work, it is possible—in some states and under certain circumstances—for a worker to receive wage replacement through workers’ compensation while continuing to work.
Any serious accident or illness can leave an employee physically unable to perform their job. Workers’ compensation cases shouldn’t be treated any differently than situations where the injury or illness wasn’t job-related.
Cases where an injury or illness could lead to job loss include:
Additionally, it may not always be possible for workers to phase back into their original jobs over time, depending on the level of therapy or healing necessary. These scenarios may also lead to a loss of employment:
No alternative role available
Depending on the size and scope of the business, a position may not be open that meets both the worker’s restrictions and qualifications. Therefore, this person may not have an opportunity to continue working at the company.
Performance in a new role
After reassignment to a position, an employer could still terminate an employee for job performance. There are no workers’ compensation factors in this situation, so the employee should be treated the same as any other.
It’s important to note an employer can’t fire an employee for filing workers’ compensation—filing a workers’ compensation claim is legal and protected—but companies in at-will employment states can fire employees while they receive workers’ compensation benefits. Typically, being fired or let go will not prevent a worker from receiving workers’ compensation benefits.
Based on jurisdiction, a fired employee may receive workers’ compensation wage loss benefits if their injury or illness led to job restrictions which were not accommodated by the employer.
Understanding how worker’s compensation works—and what type of benefits are available or who pays for them—is a nuanced conversation. Each case requires individualized attention and investigation, 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 individual situation.
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 benefits won’t cover the cost of medical treatment for injuries or accidents that occurred outside of work or for pain and suffering. State and federal laws and policies define work-related injuries.
Incidents that may not be covered by workers’ compensation include:
(Example: If a food worker accidentally cuts their hand while in their own kitchen)
(Example: If an employee reports to work under the influence—and an injury happens—this worker may have forfeited their right to workers’ compensation)
(Examples: Horseplay, accidents or illnesses stemming from practical jokes)
Some accidents may appear connected to a worker’s position, but they may not be compensable if they were not sustained while performing job requirements. For example, workers’ compensation may not provide benefits if:
(Example: A worker is injured while driving to work, as the commute isn’t part of the job’s specific requirements, even though they drive for work once they’re on the job. If they’re driving a company car, the injury may be covered, depending upon the specific facts and the state jurisdiction.)
(Example: An employee accidentally hurts their leg while in the office gym. Unless they’re hired as a fitness instructor, required to use the gym, or attending a mandatory event, this injury may not qualify for workers’ compensation, depending on specific facts and state jurisdiction.)
When in doubt, report
Regardless of whether you think an injury is covered by workers’ compensation, you should still report it and let the process sort it out. Generally, if it’s determined that a worker is injured while on the clock performing their job duty, workers’ compensation can likely provide benefits, from medical coverage to wage replacement or something else. Click here to review the benefits of workers’ compensation for employees.
How does COVID-19 affect workers’ compensation?
Workers’ compensation typically doesn’t cover infectious diseases because they’re difficult to attribute to the workplace. However, coverage may be extended to first responders or those in the healthcare field or other industries where the hazard of being infected at work is greater.
Additionally, because they’re considered uninsurable risks, pandemics are often explicitly excluded from insurance policies.
Whether or not a policy covers pandemics, evolving legislative reactions to COVID-19 have created a fluid environment for whether and how workers’ compensation covers COVID-19 that could have been contracted at work.
In certain states, new laws require employers to report work-related and non-work-related infection data to their claims administrator, regardless of coverage.
One core benefit of workers’ compensation is that it provides employees with exclusive remedies and helps prevent lawsuits by providing up-front and other benefits without the need to establish fault.
Often, workers forego the right to take legal action when they accept workers’ compensation.
However, a worker may still have the right to sue their employer in any of the following scenarios:
Get a copy of our Workers' Compensation 101 guide.
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