Workers’ Compensation Insurance

This insurance provides benefits to employees who are injured or get sick from a work-related situation. Workers' comp also includes disability benefits, wage replacement, and death benefits. For employers, workers’ comp reduces their liability for work-related injuries and illnesses. Without this coverage, your employees can sue for their medical costs and lost wages stemming from a work-related injury or illness.

A workers’ comp policy doesn’t cover an employee who intentionally causes a workplace injury or illness. A policy also doesn’t cover illegal acts committed that result in an injury or illness. Other circumstances, such as when an employee is commuting to and from work, are generally not covered under this insurance. Check your policy for specifics about what is and isn’t covered.

Most states require businesses with employees to carry workers’ compensation to provide benefits to employees for work-related injuries or illnesses. Beyond offering employees health insurance, which doesn’t cover work-related injuries or illnesses, businesses need workers’ compensation to protect injured employees and cover these claims. It will also protect your business from lawsuits and help keep your business compliant with state regulations.

Workers’ compensation insurance cost varies based on the business size, its location, its industry, and its specific claims history. Also, workers’ comp rates and requirements vary from state to state. In general, for every $100,000 in payroll, the average workers’ compensation policy ranges from a few hundred dollars to a few thousand dollars per year. At Paychex, our Workers’ Compensation Payment Service can help offset end-of-year payments by basing your premiums on actual wages, not estimates.

Most likely yes. In nearly every state workers’ comp is required, even if a business has just one employee.

The cost for workers’ comp coverage will vary based on your unique business, including how much you issue in payroll, where your business operates, industry, and claims history. For instance, small business workers’ comp insurance premiums may be lower if most employees work at a desk all day, but may be higher if the small business is in the construction or landscaping industry.

A workers’ comp insurance policy is paid entirely by employers. Premiums are based on a percentage of the business’s payroll.

Workers’ comp benefits are employee compensation and/or benefits for medical care, wage replacement, rehabilitation, and other assistance as a direct result of injury or illness while on the job (see question below for specifics). Each state determines the amount and duration of worker compensation benefits and how they are administered.

According to the U.S. Department of Labor, the four main types of workers’ compensation programs are:

• Wage replacement benefits: Also known as disability benefits, wage replacement covers a percentage of the employee’s wages if they are unable to return to work temporarily or permanently.
• Medical treatment: The costs for all treatments related to the employee’s workplace injury or disability.
• Vocational rehabilitation: Assistance to help employees who have been injured or disabled to return to work, including training, career counseling, and assistance finding a new job.
• Other benefits: Includes death benefits paid to families if the employee dies from injury or illness.

In general, if an employee experiences a work-related injury or illness, the process includes the following steps:

• The employee communicates to HR about the injury or illness, and fills out an incident report. Depending on the state, the employee may only have a certain number of days to do this.
• The employee visits a doctor or hospital, where a doctor will fill out and send a medical report to the employer.
• The employee files a workers’ comp claim, including any applicable medical history and treatment documentation.
• Once a claim is processed, the employee begins receiving payments and other benefits from the insurance provider. How much workers’ comp pays the employee is based on your policy and coverage.
• You as the employer can dispute a workers’ compensation claim if you believe the injury or illness wasn’t work-related. This requires appearing before a panel or workers’ comp agency, which will issue a final decision.
• If an employee needs time off following a work-related illness or injury, they can return to their job or a comparable position.
• Employees may be able to work part-time while still receiving partial compensation as part of the transition back to work.
• You are responsible for changing workplace policies or procedures to prevent similar illnesses or injuries from happening in the future.

If you’re self-employed or a sole proprietor, check to see if your state requires you to carry workers’ comp coverage. Insurance premiums will vary based on factors such as your location, earnings, claims history, and job classification.

States outline their own exclusions from workers’ compensation coverage, but generally contractors, freelancers, and volunteers aren’t automatically covered.

If your state requires you to carry insurance for workers’ compensation and your business doesn’t have it, you could be subject to costly penalties, which vary from state to state, or even jail time. Beyond workers’ compensation laws, it’s still a good idea to secure a workers’ comp insurance policy to protect you, your business, and your employees.