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The Complete Guide to Workers' Comp Payments

An illustration of a worker falling from a ladderAn illustration of a worker falling from a ladder
min read
August 21, 2023

The origins of workers' compensation payments go back a lot further than you might expect. 

In fact, according to “A Brief History of Worker’s Compensation,” compensation payments in the event of work-related injury were outlined in ancient Sumerian law back in 2050 BC. Similar laws have also been recorded in ancient Greek, Roman and Chinese societies. 

Workers' compensation policies not only protect your injured worker - they also protect you, the employer, from lawsuits. They are an incredibly important part of your employee benefits package. 

In this article, we’ll take a deeper look at workers' compensation benefits and how they operate - and answer some of the FAQs about them. 

How Workers' Comp Payments Work

When Do Workers' Comp Payments Start and Stop? 

These disability benefits must start immediately. In many states, you must pay the employee’s medical bills right away, even before their workers' compensation claim is formally allowed or accepted. 

The non-medical benefits, such as time loss compensation and permanent disability, will start after the claim has been accepted. 

When do Workers' Comp payments stop? How long do you need to pay them? Usually the employer stops paying when the worker has completely recovered from their work injury, but the laws vary from state to state. 

For example, in Pennsylvania, employees are eligible to receive workers' compensation benefits for up to 500 weeks, or until they are healed and can return to their job (or a replacement position). Sometimes the workers' compensation insurance provider will offer a settlement for a one-time lump sum payment instead of ongoing payments.

How Much Do Employees Receive Weekly? 

Employees typically receive a percentage of their average weekly wage at the date of injury. This varies depending on the state, but the percentage is usually around 66 percent. In some states, the value of the “wage” includes the amount the employer contributes to the employee’s benefits. Workers’ comp benefits usually aren’t taxable for your employees, although they could be if they also receive Social Security Disability Income (SSDI).

For example, in California the injured worker receives two thirds of their pretax gross wages - up to the maximum amount allowable (which increased on January 1, 2020 to $1,299.43 per week.)

There are also time loss compensation benefits, which are paid over an agreed upon period of time - usually twice per month. Time-loss compensation refers to the benefits paid when injured workers are temporarily and totally disabled and unable to earn a wage. Depending on the rules of your state, you may be required to pay employees once per week or once per month. Your state will also determine the percentage paid. For example, in Washington state, an employee receives 60 percent of their gross monthly wage, plus an extra 5 percent for a spouse and 2 percent for each dependent child. 

Workers' Comp Payments: FAQS

Do Employees Have To Be Injured At The Workplace to Be Eligible? 

The requirement is that the injury should be work-related. Generally speaking, if the employee was doing something for the benefit of their employer and they were injured in the process - that is considered work-related. 

For example, if an employee injuries their back while loading boxes as part of a warehouse job, that is an eligible work injury. If they hurt themselves while walking to the deli to pick up a sandwich on their lunch break, it wouldn’t count. 

There are many considerations to this rule, such as whether the injured worker was driving a company vehicle, doing an errand for an employer or on a business trip. So, each particular situation may require a lawyer to make sure you are adhering to workers' compensation laws. 

Does Workers' Comp Cover Long-Term Problems and Illnesses?

Yes, you may be required to compensate workers for illnesses that are the gradual cause of work conditions. For example, this might include medical treatment for heart conditions, lung diseases or other diseases caused by workplace chemical exposures or other stressors. (Of course, the employee needs to prove that these long term conditions are the direct result of work-related duties.)

If the worker has a permanent injury that affects their ability to earn a living, they may be eligible for permanent disability benefits - even if they are able to go back to work. 

Does Workers' Comp Cover Only Medical Bills?

Not necessarily. Depending on the circumstances, Workers' Comp might also include physical therapy, prescription medications, crutches and other equipment and more in addition to medical treatment. Also, it sometimes covers lost wages while the employee recovers, court costs and attorney’s fees. 

Workers' comp benefits may also cover temporary total disability, which is when a work injury renders the employee completely unable to perform any job functions on a temporary basis. The disability payments and wage loss compensation continue until the employee recovers and can return to work. 

In the case of a fatal work-related accident, a workers' compensation claim might cover death benefits to compensate the surviving spouses or next of kin for funeral expenses. 

Do Workers' Comp Benefits Vary By State? 

Yes, workers' comp payments for an on-the-job injury do vary by state. For example, North Dakota has the lowest national average premium rate in the country at $0.82. New York has the highest at $3.08. 

Each state also has its own definition of a covered employee, the types of injuries that are covered and how long an employee has before they can file a claim. 

Can Workers' Comp Payments be Stopped Without Notice? 

There are laws that require the insurance company to provide the employee with 30 days notice before cutting off payments. If the employee feels that the weekly benefits are being cut off unfairly, they can consult a workers' compensation attorney. 

Can Workers' Comp Wages Be Garnished? 

Workers' comp payments cannot be garnished. There are federal government and state laws that regulate the types of income that creditors can go after when they are collecting on outstanding debts. However, there are some exemptions to this. For example, in New York, workers' compensation is considered income the government can garnish if the injured worker owes spousal or child support. 

Are Workers' Comp Payments Taxable?

If you provide an injured employee with disability benefits, these expenses are tax deductible. Also, when benefits are paid by a private insurance company or a state-run fund, the workers' comp benefits are not taxable. 

In other words, you may be able to deduct the weekly compensation premiums you pay because the policy is a business expense. 

What Is Workers' Compensation Insurance? 

Workers' compensation insurance is a policy that protects employees under state law. It provides disability, medical care, rehabilitation and death benefits for workers who are injured or killed while on the job. Most states (except for a few) require employers to purchase this insurance policy

Who Needs Workers' Comp Insurance? 

Workers' comp insurance is required by the Department of Labor in most states if you have employees. In most situations, you’ll need to buy workers’ compensation insurance as soon as you hire your first employee. In some states it is required if you have at least one employee - in other states the requirement might be two or three employees. 

Here’s a useful guide to the workers’ compensation laws on a state by state basis. 

What is Considered Payroll for Workers' Comp Insurance?

What does the National Council on Compensation Insurance define as “payroll” when calculating workers' compensation insurance? The inclusions in payroll include wages, commissions, bonuses, extra pay for overtime work, holiday and sick pay and annuity plans. 

However, there are a few things that are NOT considered payroll, such as tips, severance payments, employee discounts, payments for military duty and work uniform allowances. 

How Much Does Workers' Comp Insurance Cost?

The cost of the policy will depend on where your employees are located - since workers’ compensation insurance is regulated on the state level. Also, it depends on the type of work being done. Physically demanding work (such as construction) will result in higher premiums, and so will a history of work-related injury claims against the employer. The size of your business will also have an impact, with smaller businesses paying less. 

Hourly offers you a smart, pay-as-you-go workers’ comp platform that makes everything a lot easier. There’s no need for a hefty upfront deposit, no guesswork on how much you owe and smooth audits - all because the payroll data is tied seamlessly to the Hourly app.

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