Photo by Becca Tapert
Originally Posted On: What is workers’ compensation? A business guide | QuickBooks (intuit.com)
Workers’ compensation is a type of business insurance that provides benefits to employees who get sick or injured on the job. Whether you’re an employer or an employee, it’s important to know how workers’ compensation protects workers. The last thing anyone wants is for an employee to get injured on the job. However, accidents happen, which is why workers’ compensation exists.
Below, you’ll learn more about what workers’ compensation is, what it does and doesn’t cover, and more. Continue reading for a more in-depth look at workers’ compensation, or use the links below to navigate throughout the post.
Workers’ compensation programs, often abbreviated to “workers’ comp,” are state-regulated insurance programs that protect workers from a work-related injury or illness. These programs provide assistance to workers suffering from occupational injuries or illnesses through payments for lost wages, medical treatment, and rehabilitation services. Workers’ compensation benefits often vary state by state, so if you’re a worker looking to file a claim, check with your state’s workers’ compensation agency.
Workers’ compensation is considered social insurance because it involves a social contract between employers and employees. On the one hand, employees are protected if they suffer a workplace injury or illness. On the other hand, businesses are given limited liability and are protected from civil suits brought on by workers’ compensation lawsuits.
One of the top FAQs regarding workers’ compensation policies is what they cover. If an employee suffers a workplace injury or illness, workers’ comp can help cover:
- Medical expenses: Emergency room visits, prescriptions, surgeries, ambulance costs
- Ongoing care costs: Physical therapy, home visits, etc.
- Lost wages: A portion of an employee’s wages can be replaced for time off for recovery.
- Funeral expenses: Funeral costs, such as a casket, embalming, transportation, and death benefits to employee’s beneficiaries, like spouses and dependents
If an employee gets hurt or sick outside of work, workers’ compensation benefits won’t be available. However, to receive workers’ compensation benefits, an employee doesn’t necessarily have to be in the office. If an employee is traveling, driving, or performing work outside the office and gets sick or injured, workers’ compensation can cover them.
According to the National Safety Council, these are the most expensive job-related injuries:
- Motor vehicle injuries: $78,466
- Burn injuries: $49,521
- Fall/slip injuries: $47,516
When it comes to workers’ compensation, benefits aren’t provided solely for single traumatic events. Sick or injured employees can receive workers’ compensation for repetitive injuries. According to The Hartford, repetitive injuries are caused by repeated movements that often damage soft tissues like joints and muscles. Examples of repetitive injuries include:
- Carpal tunnel syndrome
- Rotator cuff injuries
Repetitive injuries are not only debilitating but costly as well. If you’re an employer, one way to help prevent repetitive injuries is to invest in workplace ergonomics, such as back-supporting chairs and adjustable desks.
It’s important to note that not every employee is covered by workers’ compensation. As previously stated, workers’ compensation is controlled at a state level, and states decide who can receive workers’ comp. Numerous factors, such as the company’s size and the worker’s role, determine who is eligible for workers’ compensation. Typically, most full-time employees are covered, while interns, contractors, and temporary workers are not.
Federal employees aren’t regulated by a state’s workers’ compensation program. Instead, they’re covered by the Department of Labor’s Office of Workers’ Compensation Programs. To determine whether you’re covered by your state’s workers’ compensation program, it’s important to understand its workers’ comp laws and regulations.
Now that you know who and what are covered by workers’ comp, what’s not covered? Workers’ comp is meant to protect both employees and businesses should an employee get sick or injured. However, certain situations arise where workers’ comp isn’t available. These situations vary state by state. A few examples of what’s not covered by workers’ comp include:
- Injuries sustained by an employee under the influence of drugs or alcohol
- Injuries a worker gets intentionally
- Injuries received from a fight an employee started
- Injuries sustained from commuting to or from work
- Injuries sustained from a voluntary recreation activity, such as a company picnic
In most cases, workers’ compensation programs define injuries and illnesses as those within the course and scope of a worker’s employment. So, if an employee sustained injuries that don’t fall within those parameters, they’re most likely not covered by workers’ compensation.
Employers, not employees, are responsible for paying for workers’ comp benefits. Workers’ compensation is a type of business insurance that is required by most states. The cost of workers’ compensation insurance is a percentage of a business’s payroll schedule. When it comes to calculating and managing payroll, as a business owner it’s important to know how much you’ll be paying per employee for workers’ comp.
The cost of workers’ comp per employee depends on your insurance provider, annual premium, number of employees, and the activities they perform. Each insurer calculates workers’ compensation insurance a little differently, but a general formula goes as follows:
(Annual employee payroll ÷ 100) x workers’ compensation rate = estimated workers’ compensation cost
There are numerous factors that can influence the cost of workers’ compensation. Some factors include:
- Business size
- State laws
- Job risks
- Line of work employees do
Companies are often placed into different classes that have similar workplace injury costs and patterns. Each class’s rate is based on the average loss costs of businesses in that class for previous years.
Knowing how much workers’ comp costs can help with processing payroll and keeping accurate payroll records. At QuickBooks, we can help you understand how to reconcile payroll and manage it with our payroll software.
If an employee gets hurt at work, the first thing you should do is ensure the employee is safe and receives immediate medical care. If necessary, call an ambulance or take them to the emergency room, and approve any time off needed for recovery. It’s always best practice to promote workplace safety and have an emergency action plan in place should an employee get injured on the job.
Regarding workers’ compensation, all injuries and illnesses should be reported to a supervisor as soon as possible, with clear documentation. You should record the following details:
- Name of employee
- Date of illness or injury
- Time illness or injury occurred
- Details describing the circumstances of the illness or injury
Proper documentation can make workers’ compensation cases proceed more smoothly.
You should file a workers’ compensation claim as soon as possible. To file a workers’ comp claim, you’ll need a lot of information surrounding the injured or sick employee’s case. Some standard information you’ll need to send to your insurance company includes:
- Company name and account/policy number
- Identification information of the sick or injured employee (name, birthdate, address, phone number, Social Security number, gender, etc.)
- A detailed description of the incident (date, time, type of injury, injured body parts, witness information, medical information, estimation of hours lost, estimated return date, etc.)
Once you’ve gathered this information, send a claim to your insurance company as soon as you can. The claims process may differ depending on the state where you’re located, so make sure to check your state’s workers’ comp laws.
Yes, you need to have workers’ compensation insurance in most states. The only state that doesn’t require workers’ compensation is Texas.
There are two options for purchasing a workers’ compensation plan: private insurance companies or state-funded workers’ comp programs. However, some states require you to buy a plan from a state-funded program.
Remember, not all employees are covered by workers’ compensation. The following types of employees typically don’t receive workers’ compensation benefits:
- Independent contractors
- Domestic workers in private homes
- Some seasonal workers
- Certain agricultural employees
- Charity employees
To see if you’re covered, refer to your state’s worker’s compensation office.
To find workers’ compensation insurance, you can go through a private insurance company or a state-funded workers’ compensation program. You can typically buy workers’ compensation coverage online, over the phone, or by visiting an insurance company in person. When you go to buy workers’ comp insurance, you’ll need some information, such as:
- Payroll size
- Number of employees at your company
- Line of work of your employees
- Number of employees who need coverage
Once you have your information and documents gathered, you’ll be able to begin the process of buying workers’ compensation insurance.
Throughout this post, we’ve answered some important questions related to workers’ compensation. Simply put, workers’ compensation is a type of insurance that protects employees who get injured or sick on the job. It covers expenses such as medical bills and lost wages, and it protects businesses from liability.
Workers’ compensation coverage comes out of a business’s payroll. At QuickBooks, our payroll software for businesses helps you calculate not only workers’ compensation costs but taxes, time tracking, employee wages, and more.