Complying with the government's laws for employers isn't always a walk in the park. The same can be true for workers' compensation business insurance, which has regulations that vary from state to state.
You may also wonder, "Why is workers' compensation important?"
Well, you can find the answer to this question and more here.
What Is Workers' Comp?
Workers' comp is a form of business insurance that provides coverage for lost wages and medical expenses for employees who get sick or injured on the job.
Why Workers' Comp is Important
Workers' comp insurance is important because it protects employers and employees if there's a work-related injury or illness.
Protects Employers
If an employee has a work-related illness or injury, your workers' compensation insurance provider pays for the employee's costs, such as medical bills and lost wages. Without workers' comp, you could be on the hook for those costs.
Typical worker's comp settlement costs? $41,353.
Yeah, that's the average workers' compensation claim, according to the National Safety Council (NSC). If you're a small business owner, you know that a workers' comp claim could be very challenging to recover from.
In other words, purchasing a workers' compensation policy helps ensure your employees receive the medical treatment and health care they need without compromising your business.
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Helps Injured Workers
Most employees can't easily pay for the out-of-pocket medical costs of a workplace injury, especially if the incident prevents them from working and earning income.
For instance, the same NSC study found that the medical costs for slip and fall injuries average $27,225, while strains cost an average of $17,421.
With workers' comp insurance programs, carriers pay for the medical expenses associated with the employee's injury and give them financial support to help with wage replacement. This way, they can get the medical care they need to return to work safely without worrying about their livelihood.
Keeps You in Compliance
Finally, purchasing this insurance coverage for your business puts you on the right side of compliance.
All states except Texas and South Dakota require workers' comp. Meanwhile, employers in Texas and South Dakota can opt out of workers' compensation coverage but risk getting sued by injured employees.
States with workers' comp requirements have penalties like fines and even jail time for noncompliance. For instance, not having workers' comp in California is a criminal offense with a fine of at least $10,000 and/or jail time of up to one year. By complying with your state's regulations, you can avoid such penalties.
Encourages Safety Programs
The workers' compensation system incentivizes workplace safety programs since insurance carriers typically offer discounts on premiums for fewer workplace accidents.
What Benefits Does Workers' Comp Include for Employees?
For employees, the advantages of workers' compensation coverage include financial support that helps pay for medical expenses and lost wages.
Types of workers' compensation benefits an employee can receive are:
- Medical expense coverage
- Wage recovery for temporary disability
- Wage recovery for permanent disability
- Temporary job displacement benefits
- Death benefits
Temporary job displacement benefits are when the insurance pays for educational or training fees if an employee can no longer return to their pre-injury job and must find a new role.
In the case of job-related death, workers' compensation provides death benefits for dependents, which gives the employee's family temporary support and assistance with burial costs.
Why Is Workers' Compensation Known as the Grand Bargain?
The term "grand bargain" refers to Wisconsin's Workmen's Compensation Act of 1911 because it was the first state law that provided injured employees with guaranteed benefits in exchange for not filing lawsuits against their employers for work-related accidents and illnesses.
Wisconsin created a no-fault insurance system—i.e., the employee doesn't need to prove that their employer was negligent or at fault to receive financial support from the insurance company.
While many other states' workers' compensation laws follow Wisconsin's example of giving up the right to sue to receive no-fault benefits, each state's language for the bargain differs. Speak with a licensed insurance advisor if you have specific questions about how your state's workers' compensation program works.
What Four Types of Issues Are Not Covered by Workers' Compensation?
Workers' compensation policies typically don't cover injuries that fall under the following categories:
- Common colds and other basic issues: Things like headaches, stomach flu, and scrapes that can be treated with basic first aid.
- Injuries not directly related to the work: Injuries due to a heart attack or other illness not caused by work strain.
- Injuries arising from an employee violating company policy or committing a serious crime: Incidents involving intoxication, drug use, or deliberate harm.
- Injuries that happened while the employee was off duty: Injury from a hobby or recreational activity.
Most policies won't provide coverage for mental health trauma, but some might. Even if your policy covers mental trauma, it would have to be caused by work and be severe enough to prevent the employee from working for a period of time. As such, these claims are less common than those for physical injuries.
Understanding the Importance of Workers' Compensation as an Employer
Workers' compensation insurance is an important tool for protecting businesses and their employees in the event of a workplace injury or illness.
Employers are protected from legal action, while their employees receive payment for lost wages and the financial support they need to take care of medical expenses after an incident.
Now that you know how this type of insurance came to be, you can visit your state's Department of Labor website to learn more about the specific requirements that apply to your business.
