What is workers’ compensation?

Despite diligent precautions, workplace accidents and injuries can still occur, leaving employees in need of support and protection. This is where workers' compensation steps in as a vital safeguard, offering financial assistance and medical benefits to employees who suffer from work-related injuries or illnesses. 

Understanding the intricacies of employees' compensation is crucial for both employers and employees to navigate the complexities of workplace safety and legal obligations effectively. In this guide, we share the fundamentals of workers' compensation, exploring its purpose, benefits, and the process involved in securing this essential form of protection. 

How does workers’ comp work?

​​Workers’ compensation programs, or “workers’ comp,” are state-regulated insurance programs that assist workers suffering from work-related injuries or illnesses through payments for lost wages, medical treatment, and rehabilitation services. 

Unlike disability insurance, workers’ compensation benefits often vary by state. If you’re a worker looking to file a claim, check with your state’s workers’ compensation agency. Workers’ compensation is considered social insurance because it involves a social contract between employers and employees. 

On the one hand, employees are protected if they suffer a workplace injury or illness. On the other hand, businesses are given limited liability and are protected from civil suits brought on by workers’ compensation lawsuits when an employee accepts workers’ comp benefits.

Workers’ compensation insurance coverage

Workers’ comp is not only a relief for workers, ensuring they receive the care they need without worrying about not being on payroll, but it also offers peace of mind for employers. Knowing they have a system in place to support their workforce in times of need, employers can build their team and scale their payroll expenses with confidence.

However, workers’ comp doesn’t cover everything. Here are what workers’ comp covers and what it doesn't.

What workers comp covers

Let's dive into the nitty-gritty of what exactly falls under the protective umbrella of workers’ comp so you know what to expect if the unexpected happens. 

Here’s what workers comp covers:

• Medical expenses: Emergency room visits, prescriptions, surgeries, ambulance costs
• Ongoing care costs: Physical therapy, home visits, and specialists
• Lost wages: A portion of an employee’s wages can be replaced with time off for recovery.
• Funeral expenses: Funeral costs, such as a casket, embalming, transportation, and death benefits to employee’s beneficiaries, like spouses and dependents
• Survivor benefits: Financial support to the dependents of workers who have passed away due to work-related causes

If an employee gets hurt or sick outside of work, workers’ compensation benefits won’t be available. However, to receive small business benefits like workers’ compensation, an employee doesn’t necessarily have to be in the office. If an employee is traveling, driving, or performing work outside the office and gets sick or injured, workers’ compensation can cover them.

What workers comp doesn’t cover

Now that you know who and what is covered by workers’ comp, what’s not covered? Workers’ comp exists to protect both employees and businesses should an employee get sick or injured. However, certain situations arise where workers’ comp isn’t available. 

A few examples of injuries that workers' comp doesn't cover include:

• Injuries an employee sustained under the influence of drugs or alcohol
• Injuries a worker gets intentionally
• Injuries received from a fight an employee started
• Injuries sustained from commuting to or from work
• Injuries sustained from a voluntary recreation activity, such as a company picnic

In most cases, workers’ compensation programs define injuries and illnesses as those within the course and scope of an employee’s benefits. So, if an employee sustains injuries that don’t fall within those parameters, they’re most likely not covered by workers’ compensation.

Types of workers’ compensation

Each type of workers’ compensation serves a unique purpose, providing a safety net for workers in the event of injuries, illnesses, or accidents sustained during the course of employment. Knowing the type of coverage available to you can help you best estimate workers’ compensation costs.

Workers comp insurance: Coverage A

Often, Coverage A represents the minimum requirements mandated by the state. It serves as a baseline level of protection for employees, ensuring that they receive essential benefits in case of work-related injuries or illnesses.

Workers comp insurance: Coverage B

Coverage B goes beyond the minimum requirements, providing additional benefits that exceed the standard provisions. This coverage may come into play particularly in situations involving lawsuits or more severe injuries, offering enhanced protection for both employers and employees.

How to estimate workers’ comp costs

Employers, not employees, are responsible for paying for workers’ comp benefits. When calculating and managing payroll, as a business owner, it’s important to know how much you’ll be paying per employee for workers’ comp. Each insurer calculates workers’ compensation insurance a little differently, but a general formula goes as follows:

The cost of workers’ compensation insurance is a percentage of a business’s payroll schedule. Different factors can influence the cost of workers’ compensation. Some factors include:

• Business size
• State laws
• Job risks
• Employees’ line of work

Companies are often placed into different classes with similar workplace injury costs and patterns. Each class’s rate is based on the average loss costs of businesses in that class for previous years.

Knowing how much workers’ comp costs can help with processing payroll and keeping accurate payroll records. A payroll software, like QuickBooks, can help you understand how to reconcile payroll and manage it with our payroll software. 

Regarding workers’ compensation, all injuries and illnesses should be reported to a supervisor as soon as possible, with clear documentation. 

How to file a workers’ compensation claim

Proper documentation can make workers’ compensation cases proceed more smoothly. To file a workers’ comp claim you’ll need to complete three steps.

First, you’ll need to gather information about the employee:

• Employee’s personal information
• Date of illness or injury
• Time illness or injury occurred
• Details of the illness or injury

Second, you’ll need to gather details about the incident:

• Date and time
• Type of injury
• Witness information
• Medical information
• Estimation of hours lost

Lastly, you should file a workers’ compensation claim with your state as soon as possible.

Visit your local government’s website or consult with your lawyer to complete the workers’ compensation insurance claim process.  The claim is then submitted to the appropriate state agency or the employer’s workers’ compensation insurance carrier for review and approval.

Workers’ compensation laws and considerations

There are a few nuances when it comes to how workers’ comp operates in the real world. Some of these nuances include releasing the right to sue and exempt workers.

Requirements for workers’ compensation vary by state

The claims process may differ depending on the state where you’re located, so check your state’s workers’ comp laws. It's crucial for employers to familiarize themselves with the workers' compensation laws in their state to ensure compliance and provide adequate protection for their employees in case of work-related injuries or illnesses.

Recipients release the right to sue

Recipients of workers' compensation benefits typically release their right to sue their employer for damages related to workplace injury or illness. This trade-off is a fundamental principle of workers' compensation systems. 

Workers’ comp is designed to provide injured workers with prompt and guaranteed benefits without the need for lengthy and uncertain litigation. In exchange for receiving benefits, the injured employee agrees not to pursue legal action against their employer, except in cases of intentional harm or gross negligence.

Independent contractors may be exempt

It’s important to note that workers’ compensation doesn’t cover every employee. As previously stated, workers’ compensation is controlled at a state level, and states decide who can receive workers’ comp. Typically, most full-time employees are covered, while interns, contractors, and temporary workers are not.

Federal employees aren’t regulated by a state’s workers’ compensation program. Instead, they’re covered by the Department of Labor’s Office of Workers’ Compensation Programs. To determine whether you’re covered by your state’s workers’ compensation program, it’s important to understand its workers’ comp laws and regulations.

Next steps for streamlining your payroll process

Workers’ compensation is a type of business insurance that protects employees from work-related accidents. By ensuring that injured workers receive compensation for their injuries without having to pursue legal action against their employer, workers’ compensation systems promote workplace safety and provide a crucial safety net for all employees.

Payroll software can integrate with workers’ compensation systems, streamlining the process of managing employee compensation and benefits. Automating tasks helps businesses ensure compliance with workers’ compensation requirements while reducing administrative burden.

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