What workers compensation covers
Workers compensation is a no-fault system created by state law. When an employee is injured or becomes ill because of work, benefits are paid regardless of who was at fault, and in exchange the employee generally cannot sue the employer for that injury. This trade-off is known as the exclusive remedy. Benefits set by state law typically include:
- Medical treatment and rehabilitation related to the injury
- Partial replacement of lost wages during temporary disability
- Benefits for permanent partial or total disability
- Death benefits and funeral expenses for dependents
How the policy is structured
The standard U.S. workers compensation and employers liability policy has three main parts. Part One pays the benefits required by the workers compensation law of the states listed in the policy. Part Two, employers liability, covers lawsuits that fall outside the compensation system, for example claims by a spouse or third-party-over actions, up to stated limits. Part Three, other states insurance, extends coverage when an employee is hurt in a state not listed in Part One.
Who must carry it
Requirements are set state by state, including thresholds by number of employees and rules for sole proprietors, partners, corporate officers, farm workers and domestic workers. Texas is the only state that allows private employers to opt out; employers that do so are called nonsubscribers, must file an annual notice with the Texas Department of Insurance and lose protection from many employee lawsuits. Four states, North Dakota, Ohio, Washington and Wyoming, are monopolistic: employers must buy coverage from the state fund rather than from private insurers, though Ohio and Washington allow qualified employers to self-insure. Some large employers in other states are also allowed to self-insure.
Federal programs
Certain workers fall under federal rather than state systems. The Longshore and Harbor Workers' Compensation Act, administered by the U.S. Department of Labor, covers many maritime workers on or near navigable waters. The Defense Base Act extends it to employees of U.S. government contractors working overseas. Federal civilian employees are covered by the Federal Employees' Compensation Act, and seamen bring injury claims under the Jones Act instead of workers compensation.
How premiums are calculated
Premium is usually the rate for each employee class code, applied per $100 of payroll, multiplied by the employer's experience modification factor, which compares your past claims with similar businesses. NCCI develops classifications and loss costs in many states, while states such as California, New York and Pennsylvania use their own rating bureaus. Because the premium depends on payroll, it is estimated at the start of the year and adjusted by an audit afterward. Our workers compensation calculator gives an indicative figure.
How to choose and control costs
Check that every employee is in the right class, ask how the insurer handles payroll audits and pay-as-you-go billing, and compare safety, return-to-work and medical management services. A strong safety program and prompt claim reporting reduce both claim costs and your experience mod over time.
How claims work
Employees must report an injury to the employer within the deadline set by state law, and the employer must notify the insurer and, in many states, the state agency. The insurer investigates, pays medical providers and wage benefits, and disputes are resolved through the state workers compensation board or commission rather than ordinary courts.
Employees abroad and international programs
State workers compensation may not fully protect staff posted overseas. Employers often add foreign voluntary workers compensation, which provides benefits and repatriation expenses for traveling and expatriate employees, while local employees abroad are covered under each country's statutory scheme, sometimes coordinated through a multinational program. Polis Re helps you compare insurers and request quotes.
