What workers’ compensation is, how it works, and who pays for it

What are workers’ compensation benefits?

Workers’ compensation, also called “workers’ comp,” is a government-mandated program that helps workers who get hurt or sick on the job or because of the job. It’s basically an insurance program for workers who get hurt or sick on the job. Workers who get hurt or sick on the job get cash benefits, health care benefits, or both.

In the U.S., workers’ compensation is mostly taken care of by the different states. From state to state, the needed perks are very different.

Only in Texas are businesses not required to have workers’ compensation insurance.

How Workers’ Compensation Works

Some workers’ compensation payments may cover a portion of the employee’s lost wages while they can’t work. There may also be compensation for medical services and physical treatment as part of the perks.

Most workers’ compensation systems are paid for by private insurers, with money from the fees that each company pays. Each state has a Workers’ Compensation Board, which is a state body that runs the program and steps in when there are disagreements.

There are government workers’ compensation systems for federal employees, people who work on the water or in ports, and people who work in the energy industry. The Black Lung Program is another government program that helps coal workers and their families get benefits if they die or can’t work.

Benefits for Workers’ Compensation

Different states have different rules about workers’ compensation, and in some places, not all employees are protected. Some states, for example, don’t have to cover small businesses, so they don’t have to. Others have different needs for different businesses. The National Federation of Independent Businesses (NFIB) keeps a list of what each state needs to do about worker pay.

Salary Substitution

Most of the time, a worker’s pay replacement salary is less than the full income of the worker. About two-thirds of the person’s gross salary is paid by the most generous programs.

Most of the time, neither the state nor the federal government taxes workers’ compensation payments. This makes up for a lot of the lost income. People who also get money from Social Security Disability or Supplemental Security Income may have to pay taxes.

Reimbursement of health care costs and benefits for survivors

Most compensation plans only pay for medical bills that are directly linked to work-related accidents. For example, building workers could get paid for injuries they got when they fell off ladders, but they couldn’t get paid for injuries they got on the way to work.

In other cases, workers can get the same amount of money as if they were sick while they are on medical leave. If a worker dies because of something that happened at work, workers’ compensation pays money to the worker’s family.

They give up their right to sue.

When a worker agrees to get workers’ compensation, they give up their right to sue their boss for being careless.

This deal about pay is meant to protect both employees and companies. Workers give up more legal options in return for a promise of payment, while companies agree to a certain amount of responsibility to avoid the higher costs that could come with a negligence case.

Things to think about

A boss may not agree with a worker’s compensation claim. In that case, the Workers’ Compensation Board might be asked to settle the disagreement.

There can be disagreements about whether or not the boss is really to blame for an illness or accident.

Insurance scams can also happen with funds for workers’ compensation. An employee could lie and say they were hurt on the job, inflate how bad the illness was, or even make it up.

In fact, the National Insurance Crime Board says that there are “organized criminal conspiracies of crooked doctors, lawyers, and patients” who file fake claims for workers’ compensation and other benefits with medical insurance companies.

Independent Contractor Exception

In most states, workers’ compensation is only for regular employees and not for private freelancers. This was one of the main points of disagreement about a California vote measure that wanted to give drivers for ride-sharing apps like Uber and Lyft job perks.

The question of workers’ compensation and other perks for contract workers isn’t going away, just like the so-called “gig economy.” In 2020, about 17 million Americans worked as contractors full-time, and more than 34 million worked as contractors part-time or sometimes.

Different kinds of workers’ comp

In the U.S., rules about workers’ compensation are set by each state. The Office of Workers’ Compensation Programs is part of the U.S. Department of Labor, but it is only in charge of covering government workers, longshoremen and port workers, energy workers, and coal miners.

Because there are no federal rules for workers’ compensation, different states have very different rules for the same kinds of accidents.

Depending on where a person lives, the same injury can get very different types of benefits. In a paper, the Occupational Safety and Health Administration (OSHA) calls workers’ compensation a “broken system” and says that 50% of the costs of injuries and illnesses that happen at work are paid for by the people who get hurt or sick. Workers with low wages and immigrants often don’t even try to get benefits.

Coverage A vs. Coverage B for workers’ comp

Coverage A and Coverage B are the two kinds of workers’ compensation benefits.

  • Coverage A includes all of the state-mandated benefits that an employee who is hurt or sick is allowed to get from their employer’s insurance. It pays for things like lost wages, medical care, therapy, and death benefits if needed. The only state that doesn’t have these benefits is Texas. The benefits change a lot from state to state, and many states don’t let some workers use them.
  • Coverage B gives benefits that go above and beyond what Coverage A requires. Most of the time, they are only paid if the employee wins a case against the company for carelessness or other wrongdoing.

When a worker accepts workers’ compensation, they usually give up their right to sue their boss. This is called a “no-fault” deal. However, state laws and court decisions in several states have given workers the right to sue in a limited number of situations. So, a company may choose to buy insurance that includes both Coverage A and B.

Who pays the insurance fees for workers’ compensation?

Workers’ compensation insurance is paid for by the company.

As for Social Security payments, there is no reduction in pay. By law, the company must pay workers’ compensation payments as set by the rules of each state.

How much does it cost to pay for workers’ compensation?

The cost of workers’ comp insurance and the perks that are required by law vary from state to state. There are also different rates for workers with low-risk jobs and those with high-risk jobs.

The insurance costs are based on how much the company pays its employees. To give some examples:

  • In California, workers’ compensation costs an average of 40 cents per $100 paid to low-risk workers and $33.57 per $100 paid to high-risk workers.
  • In Florida, low-risk jobs pay an average of 26 cents per $100, while high-risk jobs pay an average of $19.40.
  • In New York, low-risk jobs pay an average of 7 cents per $100, while high-risk jobs pay an average of $29.93 per $100.

How do you get workers’ compensation?

Each state has its own rules about how to get workers’ compensation. In general, a person who gets sick or hurt on the job should:

  • Write down as much information as you can about the accident or sickness. If you can, include pictures and the names of people who saw it.
  • Tell your boss that you are hurt or sick. The next step should be for the boss to file your claim with the insurance company.

You can check with the insurance company of the workplace to make sure that a claim was made.

If your claim is turned down, you can appeal to the Workers’ Compensation Board in your state.

Who doesn’t have to pay for workers’ comp?

Most of the time, only paid employees can get workers’ compensation. Freelancers and contractors can’t.

Aside from that, each state makes its laws. Arkansas, for example, makes it clear that farm workers and real estate salespeople are not eligible. Idaho doesn’t let in housekeepers. Louisiana doesn’t let in artists or people who work on planes that spray crops.

In conclusion

Every state (except Texas) has laws that require companies to cover at least some of their workers with workers’ compensation. Since the rules are made by the states, there are many ways to get around them. Contractors and freelancers aren’t usually covered, and many states leave out certain jobs from the requirement or limit the benefits in some other way.

Most states have websites that can help you find out if you are covered by workers’ compensation insurance. For example, Florida’s Division of Workers’ Compensation has information about its program, links to the required paperwork, and a website that can tell you if your company has coverage.