Workers' compensation insurance is a vital, legally (unless you're in Texas) mandated part of your business. It can appear far more complex than it actually is. It is critical, however, that business owners have a firm understanding of what workers' compensation insurance is, how this type of insurance works, who it protects, and how claims are filed.
What is workers' compensation?
Workers' compensation, also known as workers' comp, is an insurance program that provides benefits to workers who are injured or become ill on the job. It helps compensate them for medical costs and lost wages while they are out of work.
Workers' comp insurance generally covers injury or loss of limb, illness caused by the job environment (like emphysema), repetitive motion injuries, permanent impairment, medical treatment, rehabilitation, lost wages, death, and liability insurance. Workers' comp will provide coverage regardless of who is at fault – the employee, the employer, co-workers or even customers.
While it might seem like just another business expense, workers' compensation insurance can actually protect you from litigation should an employee become injured or sick as a result of the job.
"Workers' compensation insurance exists primarily to protect the employer," said Chane Steiner, CEO of Crediful. "It is much better to pay for insurance to protect your business in case you are hit with a major claim and don't have the funds to pay it directly."
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How does workers' compensation work?
Other than Texas, every state mandates that companies carry workers' compensation insurance either through a private insurer or the state, or the business can elect to be self-insured. Each state has different rules regarding what is covered, how issues are evaluated, how medical care is delivered and the benefits an employee can receive, so it's important to check your state's regulations. Failure to carry the required insurance can result in you paying for the benefits out of pocket, as well as penalties levied by the state.
The cost for workers' compensation insurance varies by provider and industry (high-risk jobs like roofing and construction carry higher premiums than office jobs, for instance). A company's premiums can also either increase or decrease depending on the number of claims filed.
While accidents are more prone to happen in some industries than others, it affords protection to all types of businesses. Don't think that because your employees work in a cubicle that they can't be injured. Accidents can happen in offices.
Who does workers' compensation protect?
Workers' compensation protects employers and employees. It protects employers by paying for the costs associated with treating an employee's work-related illnesses or injuries. Workers' compensation protects employees by giving them financial recourse in the event of unexpected medical costs following a work-related injury or illness. It may also provide disability benefits, death benefits and the replacement of wages lost while on recovery leave.
How does the workers' compensation claim process work?
If you have an employee who is injured or becomes ill while they are on the job, here's an overview of the seven steps you can expect as a claim is filed and processed:
- The human resources team ensures the employee has their immediate medical needs tended to.
- A formal claim is prepared either by the employer or employee.
- The human resources team provides an overview to the employee about the claims process, detailing how and where they can receive medical care and how their wages can be supplemented while they are out of work.
- The workers' compensation claim is filed with the employer's insurance provider. The claim should be filed within 24 to 48 hours after the injury or illness occurs.
- The employer should stay in touch with all parties until the insurer approves or denies the claim.
- The insurance provider notifies the employee and employer whether the claim has been approved or denied. If the insurer denies the claim, the employee can demand a further review.
- If the claim is approved, the employee can receive further medical care and can return to work once their medical professional has cleared them to do so.
How to reduce claims and lower premiums
Here are three steps business owners can take to reduce workers' comp claims and lower their premiums:
- Assess the safety of the work environment by investigating how safe the equipment is, determining whether it needs to be repaired or replaced, offering safety gear where needed, and providing ergonomic office equipment.
- Create a safe work environment by training all employees on workplace safety, offering updates and tips on best practices, and incentivizing employees' accident-free work.
- Start an employee wellness program to encourage healthy living and fitness, which can reduce the number of employees injured on the job.
Workers' compensation FAQs
Can workers be paid for an injury that occurred at work if they are partially at fault?
If the injury arises out of or is within the scope of their employment – even if the employee might have been careless – they are covered. If an employee sustains an injury while under the influence of drugs or alcohol, benefits most likely will not be covered.
Can an employee collect benefits if they weren't at the work site or workplace when the injury occurred?
The laws vary by state, but an employee is generally covered anytime they are injured within the scope of performing their duties – even if they are not at their workplace. This includes remote workers, as long as they are officially employed, said Steiner.
Other examples would be employees who are injured at the hotel they're staying at for business purposes or while out running an errand on behalf of the company. Employees are also typically covered if they're injured while attending a company-sponsored event (a company picnic, retreat, etc.). However, workers' comp does not cover employees who are injured while on break, even if they are on company property.
What injuries qualify for workers' compensation?
Any work-related injury or illness qualifies for workers' compensation, especially those that result in an extended absence for the employee. For example, an employee whose back is injured while lifting a heavy box can theoretically file a workers' comp claim. So, too, can an employee who is hospitalized after developing the coronavirus during travel for work.
Notably, work-related injuries can also occur off your company's premises. If the employee was performing work for you when they were injured or became ill, they can file a workers' compensation claim. On the other hand, injuries or illnesses stemming from your employees' commutes to and from work or their lunch breaks (if they are not taking a client out to lunch) do not qualify for workers' comp coverage.
How long can an employee receive compensation benefits?
The length of benefits varies by state. In general, employees should expect a maximum benefit provision window of three to seven years. However, benefit periods this long do not mean that an injured or ill employee will be out of work for this entire period. An employee may be able to return to work in a limited capacity (or even at full capacity if they are well enough) while still receiving financial benefits from their claim.
Whenever a work-related injury or illness occurs, it's recommended that you speak with a lawyer about how long the employee's benefits might be expected to last. You should advise your employee to do the same with their lawyer. With you and your employee communicating regularly, the workers' compensation claims process should go smoothly.