How does workers’ compensation work?

Workers’ compensation covers the costs of work-related injuries and illnesses, like medical bills and lost wages. Here’s how workers’ comp works, and what you need to know as a business owner.

Workers’ compensation insurance covers an employee’s medical care costs and wage replacement for work-related injuries or illnesses. Nearly every state requires businesses with employees to have workers’ comp coverage.

Since it’s required by law, many business owners sign up for workers’ compensation coverage without actually understanding what it does or how it works. This inevitably leads to a lot of confusion as soon as an employee makes a claim.

If you want to be prepared for a claim, you need to know what to expect. Here’s a run-down on who, what, why, and how of workers’ comp.

Who needs workers’ comp insurance?

If your company has at least one employee, you need workers’ comp insurance. In fact, many state laws require businesses to purchase this coverage as soon as they hire their first employee.

There are a few exceptions, though. Texas and South Dakota are the only states where workers’ compensation insurance is optional for employers. Other state workers’ compensation laws don’t require the coverage until a company hires its second, third, or fourth employee.

Even if your business is in a state that doesn’t require a workers’ comp insurance policy for just one employee, you should still strongly consider a policy as soon as you hire someone.

If that employee suffers a work-related illness or is injured on the job, you could be left paying for some hefty legal and medical bills.

Benefits of workers’ comp coverage

Workers’ compensation insurance safeguards both your business and your employees.

Workers’ compensation insurance protects your small business

Workers’ comp protects your small business when an employee becomes ill or injured on the job.

It will pay for the employee’s medical expenses and partial lost wages — expenses you’d likely have to pay out-of-pocket if you didn’t have coverage. Most policies also include a death benefit to help reduce the financial burden of funeral expenses if an employee suffers a fatal accident at work.

In most states, a workers’ compensation policy will also include employer’s liability insurance. Policies with this benefit will cover legal fees, settlements, and judgements if an employee decides to sue your company over their injuries.

If your business is in a state where workers’ comp insurance doesn’t include employer liability coverage, like states with a workers’ compensation state fund, you may want to purchase stop gap insurance to protect you from employee lawsuits.

Workers’ compensation insurance protects your employees

A work-related injury or illness could be devastating for an employee — especially if it means an extended absence.

Workers’ compensation makes sure your staff are taken care of if they’re unable to work due to a work-related injury or illness. It will pay a portion of their missed paychecks and cover any medical expenses they racked up because of the incident.

Plus, your employees are always protected. Workers’ comp is no-fault coverage that pays out even if the employee is to blame for their injury.

Remember, workers’ compensation insurance is there to protect both your business and your workers. If you have more questions on how workers’ comp works for your particular state or industry, our expert agents are here to help.