How Workers’ Compensation Works

  • Published Feb 17, 2022

Welcome to workers’ comp 101.

Wanna know exactly how this insurance works? You’re in the right place. 

You’re also busy, so let’s get right into it.

First of all, what even is workers’ compensation?

Workers’ compensation (aka workers’ comp or workmans’ comp) is an insurance policy designed to protect  business owners and their employees. Through workers’ compensation, an employee who gets injured on the job can receive benefits to help cover expenses such as lost wages, medical costs, and more. Employers benefit from having comprehensive workers’ compensation coverage because it can protect the business from having to cover those expenses out of pocket. Plus, it can protect the business from potential legal action taken by the employee (if they decide to lawyer up).

Workers’ compensation can sometimes be overwhelming without the right background and guidance to help you through the process. There are deadlines to adhere to, important factors to consider, and specific steps to follow (but don’t worry, we’ll walk you through ‘em).

What are the benefits of workers’ comp coverage? 

As an employer, workers’ comp benefits you in three key ways: 

  1. Protects your employees against medical costs and lost wages if they become injured or get sick while on the job.
  2. Protects your business against being sued by an employee in relation to a workplace injury. 
  3. Helps your business comply with the law, as having workers’ comp coverage is a law in most states. Check our state-by-state guide to see if it’s required in your state. 

Which industries need workers’ comp coverage?

Nearly every industry can benefit from workers’ comp coverage. Although some may need the benefits more than others, there’s no replacement for comprehensive workers’ comp coverage if you own a business. That’s because without it, your business could face devastating financial impacts if you or an employee is injured while working. Some of the industries that should consider workers’ comp include: 

  • Architecture & Engineering Services (Architects, Surveyors, etc.)
  • Clothing Retail (Clothing Stores, Dry Cleaners, etc.)
  • Contractors (Electricians, Flooring Installation, Painting and Wallpaper Hanging, etc.)
  • Educational Services (Professional Training, Computer Training, Cosmetology Schools, etc.)
  • Financial Services (Accountants, Payroll Services, etc.)
  • Food & Beverage (Restaurants, Bars, Bistros, etc.)
  • Food & Beverage Manufacturing (Distilleries, Breweries, etc.)
  • General Retail (Meal Markets, Grocery Stores, Pet Stores, etc.)
  • Hospitality (Business Traveler Hotels, Extended Stay Hotels, Luxury Hotels, etc.)
  • Legal Services (Lawyers, Notaries, Court Reporters, etc.)
  • Medical Professions (Blood Banks, Dentists, Doctors, etc.)
  • Office, Home, and Garden (Cleaning, Florists, etc.)
  • Personal Product Retail (Auto Parts, Beauty, Sporting Goods, etc.)
  • Personal Services (Barber Shops, Beauty Salons, etc.)
  • Printing & Publishing (Screen Printing, Commercial Printing, etc.)
  • Small Businesses
  • Scientific Services (Consulting, Research, etc.)
  • Tech Services (Data Processing, Hosting, Office Machine Repair, etc.)
  • Therapeutic Services (Acupuncture, Mental Health Practitioners, etc.) 

Who pays for workers’ comp premiums?

The employer pays for workers’ comp premiums to provide coverage for employees. This coverage is in exchange for the protection workers’ comp gives employers against liability related to workplace injuries. If you’re concerned about how much workers’ comp may cost, check out our guide to lowering workers’ comp costs

How much does workers’ comp cost? 

How much you’ll pay for workers’ comp, also known as your premium, will be determined based on a variety of factors unique to your business, including: 

  • The industry your business operates in
  • Where your business is located
  • The number of employees your business has
  • Your business’s history of workers’ comp claims and safety incidents
  • Your payroll

At Cerity we take all these factors into detailed consideration, so you can be sure you’re not paying more than you need to for your business.

Is workers’ comp based on gross or net wages? 

One important factor used to help determine your workers’ comp insurance premium is your business’s annual payroll or the wages your full-time and part-time employees receive annually. Insurers use the gross payroll, which may include salaries, wages, commissions, bonuses, stock, PTO, pension, or anything else received by the employee as a part of their pay. 

What constitutes a filing for workers’ compensation?

Employees should file for workers’ comp if they have experienced injuries or illnesses that occurred as a direct result of doing their job. This includes workplace accidents and diseases or illnesses caused by workplace situations such as exposure to toxic chemicals.

Before filing a claim, employees must be sure that their company has a workers’ comp insurance policy, that they are an official employee of the business — not an independent contractor — and that the injury or illness occurred while on the job.

Are there workplace injuries that workers’ comp does not cover? 

Yes. Workers’ compensation typically will not cover on-the-job injuries related to:

  • Employees engaging in activities that are against company policies
  • Psychiatric conditions
  • Self-inflicted incidents
  • Accidents occurring on the commute to or from work

For more information on what workers’ comp covers, visit our helpful guide.

How does workers’ comp work in different states? 

The workers’ comp process is different depending on where your business is located. When it comes to each state, the legal requirements and deadlines to file for coverage vary for each. For example, let’s go over some commonly asked about states and some specific information about them: 

  • California: Workers’ comp is required for all businesses. All injuries must be reported to employers within 30 days. Injured or ill employees have up to one year to file a workers’ comp claim.
  • Florida: Workers’ comp is required for all businesses with four or more employees. All injuries must be reported to employers within 30 days. Injured or ill employees have up to two years to file a workers’ comp claim.
  • Georgia: Workers’ comp is required for all businesses with three or more employees. All injuries must be reported to employers within 30 days. Injured or ill employees have up to one year to file a workers’ comp claim.
  • New York: Workers’ comp is required for all businesses. All injuries must be reported to employers within 30 days. Injured or ill employees have up to two years to file a workers’ comp claim.
  • Texas: Texas is the only state that doesn’t generally require workers’ compensation insurance, except for construction and government work.

What’s the first step in the claims process?

The first — and arguably most important — step of the workers’ compensation claims process is for the injured employee to receive prompt medical treatment. Whether that means receiving emergency care immediately following the incident or visiting a primary care doctor as soon as possible after the injury, employees have a better chance for a full recovery if they seek treatment swiftly.

In addition, employees will need to have medical records documenting their treatment steps to file for a workers’ comp claim through most policies. If the injury does not require emergency care, employees should check with their employer to see if a specific doctor must be seen to be covered by the workers’ comp policy.

Even if employees feel fine following a workplace accident, it’s important to seek medical attention as there could be long-term effects from the accident that may not appear immediately. Having records that show a need for compensation are essential.

How should injured employees notify their employer?

Early reporting consistently results in a better outcome to a claim, which can include a faster return to work, fewer prolonged injuries, and a lower cost of medical treatment. A favorable outcome is important for both the injured worker and the business.

After a workplace accident, it is essential to inform employers as soon as possible about the event and any injuries related to it. A written notification of the event details as soon as possible after the event is best, even if the employee has already reported the information verbally.

Laws may vary by state, but often employees have a limited window in which to report a workplace injury to qualify for workers’ compensation benefits. If employees are not sure if they were injured in the accident, it’s still best to report the incident so that if they experience injury ramifications later they can still qualify for workers’ comp coverage.

How does the workers’ comp claim begin? 

After the employer has been notified, an official workers’ comp claim can begin. Typically, this involves the injured employee filling out the required reporting forms provided by the employer. These forms vary and are based on the state in which the business is based, the type of injury or illness, and the insurer requirements. Often businesses are required to provide workers’ comp policy details and forms to new employees upon their hiring, depending on local laws.

Typically the forms include important details about the event such as the nature of the injury, where and when the injury occurred, details surrounding the incident, medical treatment required in relation to the injury, and more.

What happens after the form has been turned in to the employer? 

After the injured employee returns the form to their employer, the employer takes the next step in the claims process by filing the claim and associated paperwork with their workers’ compensation insurance provider and the state workers’ comp board, depending on local state laws. There are laws surrounding the employer’s responsibility in filing workers’ comp claims that protect employees and give employers the incentive to take swift action.

After the claim has been filed by the employer and the insurer has received medical documentation from the injured employee’s physician, the insurance company evaluates the claim and notifies the employer and the injured employee whether or not the claim has been approved.

What happens if a claim is denied? 

Workers’ comp claims can be denied for a variety of reasons, however, many denials occur due to common workers’ comp claim process pitfalls. If denied, employees typically have the opportunity to appeal or ask the insurer to review their decision. The insurance company will report their decision to the workers’ compensation board, depending on state laws. If desired, an employee can seek legal representation.

What happens if a claim is approved? 

If approved, employees will be notified about their compensation, which may cover costs such as medical expenses, disability, lost wages, and more. When applicable, the employee can choose to accept the compensation amount via either a lump sum or a structured settlement. The employee can also choose to seek legal representation if they’d like assistance at any point in the claim or settlement process.

Who pays the compensation when an employee is injured? 

When a worker is injured or gets sick while working and their employer has workers’ compensation coverage, the insurer is responsible for paying all of the reasonable medical treatment, lost wages, and other benefits as outlined in the insurance policy. 

How do workers’ comp settlements work?

Ideally, once medical care is provided and the employee is recovered, they can go back to work and their workers’ comp claim can be closed. Sometimes a workers’ comp claim must be closed with a settlement that is negotiated between the insurance provider, the employee’s legal representation, and the employee. Settlements can be agreed upon outside of court, but sometimes an agreement cannot be made and the settlement must be taken to court. This process can take a lot of time and can sometimes be taken to a hearing in which a judge ultimately determines the settlement amount. Once determined, the settlement amount may be offered to the employee in one of two ways — one lump sum payment or a structured settlement paid out in installments over time. 

How does a workers’ comp claim affect the employer?

When a workers’ compensation claim is filed, employees are protected against paying for certain costs related to the employee’s injuries. These costs include medical care, lost wages, and more. In addition, employers are protected from liability suits regarding the incident. However, there are some direct and indirect costs that employers may face if their employees file workers’ comp claims. For example, an employer may be directly affected in the form of higher insurance premiums. This is because insurers use a business’s workers’ comp claim history to determine insurance premium amounts. In terms of indirect costs, OSHA outlines many indirect expenses related to workplace injuries and workers’ comp claims. 

Is workers’ comp bad for a company?

No. The opposite is, in fact, true. Although the laws vary from state to state, most businesses are legally required to have workers’ comp coverage. This coverage not only helps them stay within legal regulations but also helps provide much-needed financial protection when an employee is injured or sick while on the job. Even business owners who aren’t legally required to have coverage can experience many benefits of workers’ comp.

What happens after injured employees return to work? 

Once injured employees have recovered, they must notify their employer and the workers’ comp insurance company when they are ready and able to come back to work. Disability benefits may or may not continue once the employee has returned, depending on the severity and longevity of the injury.

How do workers’ compensation claims affect insurance premiums? 

If a business continues to see its employees injured on the job, there is a chance that the company’s workers’ comp premiums, or costs, could increase. To help prevent injuries and keep premiums low, businesses should prioritize employee training programs, enact workplace policies that encourage safety, and maintain a workplace culture where safety is a top priority.

Why is it important to follow these steps in the claims process?

It’s crucial that employers and employees follow the steps in the claim process completely and quickly. Avoiding missteps during the claims process will help ensure the best possible outcome from workplace injuries or illnesses. 

That’s why Cerity is here — to make workers’ comp easy and smooth for busy business owners. We offer simple policies and a clear and transparent claims process.

If you have additional questions about how workers’ compensation works, how to handle workplace injuries, or what the workers’ compensation claim process is like, check out the resources in our Learning Center or contact us 24/7 via our online portal or our claims reporting hotline at 844-423-7489.

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The information provided is intended to provide a general overview. This information is not legal advice and should not be relied on as such. Cerity® makes no warranties for the accuracy, adequacy, or completeness of the information provided, and will not be responsible for any actions taken based on the information contained herein. If you have legal questions or need legal advice, please consult an attorney.