All 50 states have statutory schemes in place that create workers’ compensation systems and provide for workers’ compensation benefits as an employee’s exclusive remedy for work-related injuries.

Although the framework is different from state to state, workers’ compensation generally protects companies from potentially limitless tort liability for industrial accidents and occupational diseases, while expediting the delivery of benefits to injured employees regardless of fault.

What Is Workers Compensation Insurance?

Workers’ compensation insurance or simply workers comp is insurance that an employer secures to cover the benefits that it must pay to employees for work-related injuries and diseases. It pays monetary benefits to injured employees to compensate them for temporary and permanent disability associated with their work-related injury or disease.

Equally important is that workers’ compensation insurance supplies, at no cost to injured employees, medical benefits related to the work-related injuries. In general, this means that injured employees are furnished with a primary care physician and specialists when needed, hospitalization needs, medical tests, prescription drugs, physical therapy, and rehabilitation care. Workers’ compensation insurance also pays a portion of injured employees’ lost wages.

However, workers’ compensation insurance does not apply if the injured individual is not one of the policyholder’s employees. It also has no application if the employee’s injury did not happen at work; workers’ compensation is not health or medical insurance and it’s important to note the distinction between the different kinds of coverage.

 

Why Your Business Needs Workers Compensation Insurance

If you own a business, and that business hires employees, it’s important that you’re covered by a workers’ compensation policy. Just like your business has commercial property insurance to pay for the costs of theft or fire, or a commercial auto insurance policy to pay for the costs associated with a vehicle collision, it must have a workers’ compensation policy to pay for the costs of injuries that employees sustain in the workplace. In short, workers’ compensation insurance protects employers from the risk of workplace injuries and covers the costs associated with those injuries.

A business should have workers’ compensation insurance because:

  • It’s the law across most states. In fact, Texas is the only state that does not require employers to purchase workers’ compensation insurance.
  • It helps a business avoid serious financial harm. The amounts that an employer could be required to pay for potentially limitless tort liability for industrial injuries is staggering. A death claim could exceed millions of dollars and bankrupt an uninsured employer.
  • It gives employees a safety net when disaster strikes. According to U.S. Bureau of Labor Statistics, private industry employers reported 2.8 million nonfatal workplace injuries and illnesses during 2020. In addition to helping employers cover risk, workers’ compensation insurance helps employees too.
  • It protects a business from civil and criminal penalties. If a business fails to carry workers’ compensation insurance, it could face serious repercussions. These vary by state and can range from fines of up to $100,000 and up to seven years in jail.
  • It’s the right thing to do. Workers’ compensation systems arose as one of the great political compromises of the Progressive Era—injured workers gave up the right to sue employers for personal injury damages in return for less generous but more certain benefits. Workers’ compensation insurance holds employers to the terms of The Grand Bargain.

What Does Workers Compensation Insurance Cover?

 

Workers’ compensation insurance covers injuries or diseases that are work-related. An employer’s liability in this regard is broad in scope and can include a variety of scenarios. Injuries that occur in the workplace such as a slip and fall, a vehicle collision, or an industrial explosion are covered by workers’ compensation. Work-related illness are also covered. For example, situations such as an administrative assistant who develops carpal tunnel syndrome because of repetitive movements or a worker who falls ill from exposure to jobsite toxins or chemicals fall would fall under the umbrella of workers’ compensation coverage.

What Benefits Do Injured Workers Receive?

Workers’ compensation insurance generally provides four different types of benefits: medical benefits, wage benefits, vocational rehabilitation, and death benefits. Some of the specific kinds of benefits include:

  • Primary care physician medical care
  • Specialist medical care
  • Hospitalization needs
  • Medical tests
  • Prescription drugs
  • Physical therapy
  • Rehabilitative care
  • Lost wages
  • Temporary disability benefits
  • Permanent disability benefits
  • Supplemental Job Displacement Benefit
  • Payments to a spouse, children, or other dependents when an employee dies from a job injury or illness

An employee may also receive other kinds of financial assistance as a result of a work-related injury or illness, including:

  • State Disability Insurance (SDI)
  • Unemployment Insurance (IU) (when workers’ compensation payments are delayed or denied)
  • Social Security disability benefits for total disability (reduced by the workers’ compensation payments received)
  • Sick leave, group health insurance, long-term disability, salary continuation plans, and other benefits that employers and unions offer
  • Judgment proceeds awarded in a claim or lawsuit claiming that the employee’s injury was caused by someone other than the employer

Why Choose HUB's Workers Compensation Insurance?

Employers can rely upon HUB to help them assess and manage workforce and workplace risks and create a workers’ compensation coverage package that meets the employer’s specific unique situation and insurance requirements.

And while workers’ compensation rates and premiums (which can vary by state) are based on variables like the employer’s industry type, number of employees, and company safety record, HUB can also introduce employers to new products that allow payment of workers’ compensation premiums based upon actual payroll. Options like self-reporting payroll or billing premiums automatically through a third-party payroll system are some options HUB can explain to let employers avoid a large premium down payment and better manage cash flow.

HUB works with its clients to create specifically tailored risk management strategies based upon the promotion of employee safety and wellness. HUB research indicates that employers that focus on promoting employee safety have experienced a 30% drop in workers’ compensation and disability claims, and a similar percentage decrease in short-time sick leave. Similarly, HUB created a two-part plan for one employer that reduced its experience modification rates by 20%.

HUB also helps employers reduce workplace injuries by providing guidance on best practices for creating healthy and safe working environments. Pre-hire screenings, enhancing the physical workplace with healthy food options and access to walking trails, work-focused options like task-based work rules and employee safety training, daily check in requirements for workers that perform injury prone tasks, and wellness programs to promote employee physical and emotional health are all lynchpin elements that HUB recommends for creating a comprehensive and affordable risk management and workers’ compensation strategy.

Whether you’re a new employer implementing the foundations of a workers’ compensation program, or a seasoned business looking for more comprehensive protection at a more affordable price, HUB will help you to secure the most optimal coverage for your workers’ compensation insurance needs.

Additional Workers Compensation Insurance FAQs

What are workers compensation exemptions?

In many states, certain types of operations and individuals who perform certain kinds of tasks qualify for workers’ compensation exemptions. Workers’ compensation exemptions apply to specific employee types and also relate to specific business owners. An exemption authorizes the individual or business to exclude itself from a state’s workers’ compensation laws.

States often exempt operations that employ few workers. States may also exempt employees who work a nominal number of days or who earn relatively little compensation. Real estate agents and agricultural workers are examples of the employee types that could be exempt. Independent contractors are also exempt from workers’ compensation coverage in some states. However, employee classification laws are evolving and some states require business entities to provide workers’ compensation to their independent contractors.

States also allow various types of business owners to opt out of their company’s workers’ compensation coverage. These business types include sole proprietors, partners, members of limited liability companies (LLCs), and corporate officers who own more than a certain percentage of a company’s stock.

What laws mention workers compensation?

In addition to the workers’ compensation laws in each state, there are federal laws that mention workers’ compensation and operate to provide compensation for workers injured in various contexts. These include:

  • Federal Employees’ Compensation Act
  • Federal Employment Liability Act (FELA)
  • Merchant Marine Act (the Jones Act)
  • Longshore and Harbor Workers’ Compensation Act – and-
  • Black Lung Benefits Act
  • Safety, Rehabilitation and Compensation Act of 1988

What is a workers compensation settlement?

A workers’ compensation settlement occurs when a claim for workers’ compensation benefits is closed for a sum of money agreed to between the injured employee, the employer, and the workers’ compensation insurance company. Some states require judicial review of proposed settlements.

The settlement payment may compensate an injured employee for various losses arising from the work injury or illness, including:

  • Previous medical care and outstanding medical bills
  • Costs of future treatment
  • Disability award to compensate for injuries that leave an employee permanently impaired
  • Past or future lost wages
  • Attorney’s fees

Settlement can be made paid in a lump sum, which is a one-time payment for all medical costs and benefits under a claim. In some states, the injured employee may have to agree not to seek any future reimbursement for the injury. Settlement can also be accomplished through a structured payment plan, where the employee receives regular amounts over a specified timeframe. Structured payment plans may include a separate mechanism for future medical care payments.

The next step for unsettled workers’ compensation claims is a court hearing. Workers’ compensation litigation is expensive, time-consuming, and poses a risk to both parties in the event a judge orders settlement in an amount that is either much more or far below the settlement offer(s) made by any party.

What is a workers compensation insurance policy?

A worker’s compensation insurance policy is a contractual arrangement in which one entity (usually the licensed workers’ compensation insurer) agrees, in exchange for payment of a premium, to assume the risk of a loss sustained by another entity (usually the employer) that arise as a result of an employee’s work-related injury or illness.

Most workers’ compensation policies are comprised of two parts which address workers compensation and employers liability. In the first part, the insurer agrees to pay whatever a state’s required compensation amounts, since workers’ compensation (unlike other kinds of insurance) does not have a ceiling or limit on a policy amount. The insurance company pays whatever the employer is statutorily obligated to pay as a result of an employee’s injury. In the second part, the workers’ compensation policy provides coverage where an employee sues the employer for work-related injury or illness that is not subject to state statutory benefits. This part of the policy does have a monetary limit.

A workers’ compensation policy also covers other kinds of liability that may be imposed upon an insured employer. For example, coverage applies to third-party claims, where an injured employee sues someone other than the employer and then the third-party tries to hold the employer responsible. Workers’ compensation also covers situations in which the spouse of an injured employee files a lawsuit against the employer for loss of consortium.

What are the guidelines for workers compensation?

Five basic eligibility requirements must be satisfied for the payment of workers’ compensation.

  • First, the individual seeking compensation for an injury must be classified as an employee
  • Second, the injured party’s employer must carry workers’ compensation insurance
  • Third, the employee must have a work-related injury or illness -and-
  • Fourth, state deadlines for reporting the injury and for filing a workers’ compensation claim must be met
  • Finally, the injured employee must attend medical appointments, examinations, and treatments

Do I need workers comp insurance for just one employee?

Although a sole proprietor is not required to purchase workers’ compensation insurance, employers with one or more employees must have workers’ compensation.

Contact a HUB advisor about how to protect your employees while taking advantage of significant savings with workers compensation.