Consultant’s Corner: What is Workers’ Compensation Insurance?

Question: What is workers’ compensation insurance and how does it work?

Workers’ compensation is a no-fault system designed to provide benefits to employees injured as a result of their employment activities and to limit the liability of employers. Because it is a no-fault system, the employee does not need to prove negligence on the part of the employer to establish liability. It also means the employer cannot use negligence on the part of the employee as a defense to a claim.

A work-related injury can be any condition that is caused, aggravated, or accelerated by the employment activities. This includes traumatic injuries, gradual injuries, or occupational diseases. The employee needs to show only that the employment activities were a substantial contributing factor to the disability and/or need for medical care.

Basic Benefits

Workers’ compensation provides four basic types of benefits:

1. Wage loss
2. Compensation for the loss of use of a part of the body
3. Medical benefits
4. Vocational rehabilitation services

Who Needs Coverage?

Compensation law depends on your state of business. In some states, all employers are required to purchase workers’ compensation insurance or become self-insured. This is often referred to as “mandatory coverage.” Employers are generally defined as those that hire another to perform services. Employees are generally defined as people performing services for another, for hire, including minors, part-time workers, and workers who are not citizens. Information about limited exceptions to mandatory coverage are explained in a workers’ compensation insurance fact sheet.

States may investigate employers that may not have carried workers’ compensation insurance coverage for employees and the results of these mandatory coverage investigations may be referred for civil penalty action.