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What does workers’ compensation insurance actually cover?

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14 mins

In this comprehensive guide, we cover everything you need to know about workers' compensation insurance, including:

Read on to learn more.

What is workers' compensation insurance?

Workers' compensation is a type of accident insurance paid by employers. If you are injured or become ill on the job, you may receive benefits to cover medical bills or rehabilitation costs. Workers' compensation also covers partial lost wages if you miss work. Some policies also provide death benefits if you’re killed on the job.

Workers' compensation insurance only applies if you get sick or hurt while performing the duties of your job. According to the Bureau of Labor Statistics, only 1 percent of American workers missed work due to an occupational injury or illness. Therefore you can’t rely on it solely for disability protection. If you become unable to work due to a non-job-related accident or illness, you will not qualify for workers' compensation.

How does workers' compensation work?

Private employers are required to carry workers' compensation insurance in nearly every state (Texas is the only exception). Employers pay the premium for coverage; employees never pay to be covered by workers' compensation. If you become sick or injured due to your work, your employer’s insurance provider will pay your claim based on the required benefits.

For the most part, the legal requirements for workers' compensation are mandated at the state level. The only exception is the Office of Workers' Compensation Programs, which is part of the U.S. Department of Labor. It oversees workers' compensation for federal government employees, as well as longshoremen and coal miners.

Because oversight lies at the state level, coverage can vary greatly depending on where you live. Each state determines the amount of benefits employees are entitled to. They also dictate the following circumstances:

  • What injuries are covered
  • How medical care is delivered
  • How claims are handled
  • How disputes are resolved

Laws require that injured workers receive medically necessary treatment. However, the soaring cost of medical care has led many states to adopt measures to minimize costs, such as guidelines on acceptable treatment protocols and diagnostic tests for specific injuries.

How common are workplace injuries?

According to the National Safety Council, a worker is injured on the job every seven seconds. In 2017, there were 104 million production days lost due to work-related injuries. The occupations that result in most workplace injuries are:

  • Service, including police officers and firefighters
  • Transportation and shipping
  • Manufacturing and production
  • Installation, maintenance, and repair
  • Construction

The three types of workplace injuries that result in the most lost workdays, as reported by the National Safety Council:

  • Overexertion, such as lifting and lowering or repetitive motions. These injuries account for more than a third of lost workdays.
  • Contact with objects and equipment. This includes being struck by or against an object or equipment; being caught in or compressed by equipment or objects; or being struck, caught, or crushed in a collapsing structure, equipment, or material. These types of injuries account for 26 percent of lost workdays.
  • Slips, trips, and falls, which also account for about 26 percent of total lost workdays.

Other common workplace injuries that typically fall under workers' compensation include electrocution, transportation incidents, machinery accidents, fires, and exposure to harmful substances. Another common type of workplace injury is workplace violence, such as patients attacking nurses, parolees injuring their parole officers, or customers taking out their frustrations on food service workers, retail clerks, postal carriers, and taxi drivers.

How do you qualify for workers' compensation benefits?

The main qualification for workers' compensation is that your injury or illness was caused by the work you perform. Generally speaking, any task you perform for the benefit of your employer is considered work-related. And an injury resulting from a work-related task is eligible for workers' compensation.

That means if you hurt your back while loading boxes for your employer and have to take several days off, you should be able to collect workers' compensation.

On the other hand, if you suffer the same injury helping a co-worker move into a new house, you’re likely not covered.

If you’re injured in a car accident while driving to meet with a client of your company, workers' compensation generally applies. But it doesn’t if you have an accident while commuting from your home to the office.

If you get sick and miss several days due to food poisoning at a company-sponsored event, you’re likely covered. But you’re not eligible for workers' compensation if the same thing happens while you’re casually eating lunch with co-workers. (On the other hand, you might be eligible if it happens while having lunch with your boss where company-related topics are discussed.)

An injury or illness does not have to be caused by a one-time accident to be covered. Chronic conditions resulting from your job and that prevent you from working are also eligible for benefits. However, it’s often difficult for employees to prove that their condition was caused by their job and not personal habits.

Common chronic conditions people collect workers' compensation for include:

  • Repetitive stress injuries caused by typing, assembly line work, or jackhammering
  • Chronic back problems from prolonged lifting
  • Breathing problems caused by exposure to harmful chemicals
  • Heart or digestive problems caused by workplace stress

Does it matter where a workplace injury occurs?

Where an injury occurs generally is not a factor in whether you qualify for workers' compensation. While most workplace accidents and conditions do occur onsite, workplace activities can take place in a variety of locations. You’re typically eligible if you’re hurt or become ill while traveling for business or attending an offsite company-sponsored event.

If a remote worker is injured in the course of work-related activities, he or she will generally be eligible for workers’ compensation benefits. State laws differ about what is considered a work-related injury for remote employees. It often comes down to defining the employee’s duties and normal working hours. However, there are documented cases where a home-based employee collected workers' compensation for falling down the stairs while walking to their home office where they performed their job on behalf of their employer.

Of course, keep in mind that an injury on company property doesn’t necessarily make it eligible for workers' compensation. For example, employees who injure themselves in an onsite exercise facility during their free time generally do not qualify for workers' compensation. In this example, the employee was taking advantage of a workplace benefit at the time of the injury, not working.

How does employment status affect workers' compensation eligibility?

Your employment status also matters. You need to be a paid employee of the company where you were injured. Part-time and seasonal workers also qualify for benefits if they suffer a workplace injury or illness.

Sole proprietors and partnerships that don’t have non-owner employees are not required to carry workers' compensation insurance. Once they hire non-owner employees, they will need to obtain coverage. Most states do allow business owners to get coverage for themselves, but it’s not required.

Independent contractors and freelancers are typically not covered if they are injured at the company they are contracting with. However, in some cases, a non-employee may be seen as performing the duties of an employee and would, therefore, be covered by the company’s insurance.

Your occupation may prevent you from qualifying for workers' compensation. Some states exempt certain categories of workers, such as agricultural workers and domestic employees. In addition, some states don't require an employee to be covered if he or she is paid solely by commission.

Who collects workers' compensation and when?

In general, workers' compensation laws do not penalize a worker who is at fault for their own injury. Therefore, if you caused an accident while traveling for a business meeting, you’re still covered if you were injured and couldn’t work. Another example is if you got distracted while using a machine and suffered a bad cut or broken bone.

However, you likely won’t receive workers' compensation if you get injured:

  • While intoxicated at work.
  • Through an intentional act.
  • During a workplace fight that you started.
  • While goofing off or participating in horseplay.

A gray area that varies by state and the insurance carrier is situations in which an employee was injured while violating a company policy or safety rule, even if the employee didn’t necessarily act negligently.

Some state laws stipulate that a violation of policy doesn’t necessarily make an employee ineligible for workers' compensation. But some do enable employers to deny benefits for, say, neglecting to wear mandatory safety goggles that resulted in an eye injury.

What if my employer is at fault?

If you agree to accept workers' compensation from your employer, you cannot subsequently file a lawsuit seeking additional damages. Your workers' compensation claim is legally considered your “exclusive remedy” for work-related injuries and illnesses.

The purpose of this provision is that many workers cannot afford the legal fees required to bring a lawsuit against their employers. There are also no guarantees that an employee will win a lawsuit. Plus, they have to wait through a lengthy litigation process before they can collect benefits.

Labor laws were enacted that require employers to pay benefits to their injured workers. This helps them avoid legal fees and it provides more immediate benefits. And by agreeing to pay benefits, employers are protected from litigation.

There are limited circumstances in which you might file a lawsuit, including:

  • Being intentionally hurt by your employer.
  • Your employer failing to carry adequate workers' compensation insurance.
  • Denying a workers' compensation claim.

What benefits does workers' compensation provide?

What workers' compensation covers and how much you receive will vary by state. In general, if you are injured or become sick due to your job, your employer will have to pay for:

  • Medical expenses related to the injury covered by workers' compensation. This includes physician visits, hospitalization, medication, diagnostic tests, and physical therapy.
  • Disability coverage for lost wages. If you are unable to work due to a work-related injury or illness, workers' compensation provides partial reimbursement of lost wages.
  • Rehabilitation. You may receive paid vocational training if you are forced to change occupations due to an injury.
  • Reimbursement for accidental death. If death occurs in the course of working, your employer will be required to pay death benefits to your surviving spouse and dependent children.

Workers' compensation typically does not cover pain and suffering or punitive damages for employer negligence. Employees who feel they deserve restitution for these damages must file a lawsuit against their employer, which negates their ability to collect workers' compensation benefits.

It also generally does not cover emotional or mental health conditions that are not accompanied by physical workplace trauma.

While the type of coverage is generally uniform in all states, how much you receive and for how long will vary based on your state’s law.

The amount you receive will be a percentage of your wages at the date of injury. A typical amount is two-thirds of your pay. Some states also include employer contributions to your employee benefits when determining your wages.

Income replacement benefits are based on whether a disability is:

  • Total or partial.
  • Permanent or temporary.

Most states require benefits to be paid for the duration of the disability. As a result, employers and their insurers will do what they can to make sure injured employees get back to work as soon as possible. Some states even specify a maximum number of weeks that benefits can be paid for temporary disabilities. One state may require up to 500 weeks of benefits, another may only require 100 weeks.

Do I still need disability insurance if I’m covered by workers' compensation?

While workers' compensation is nice, it's not the same as having a disability insurance plan. In fact, it pales in comparison.

The major difference between the two is when you are eligible to receive benefits. Workers' compensation will only provide benefits if you suffer an injury or illness directly caused by your job. Meanwhile, an individual disability insurance policy protects you from injuries or illnesses that limit your ability to work - regardless of whether what caused them.

Typically, workers' compensation programs only cover employees of the company. Most states do not require workers' compensation coverage on contractors. This makes disability insurance an ideal way for these types of workers to protect their source of income in the event they become unable to work.

Another key difference between these two types of coverage is that workers' compensation benefits are typically limited by state laws. On the other hand, you can buy an individual disability policy that will pay benefit amounts exceeding those offered by your workers' compensation from your employer.

How does workers' compensation affect disability insurance and SSDI benefits?

Whether or not you can collect both disability insurance benefits and workers' compensation will primarily depend on the language in your individual policy.

Some long term disability insurance policies exclude work-related injuries from coverage. If that’s the case, being eligible for workers' compensation makes you ineligible for your long term disability insurance policy benefits. Some carriers take the position that workplace disabilities should be covered by workers' compensation, not by them.

You can collect workers' compensation and Social Security Disability Insurance (SSDI) simultaneously. They are separate programs governed by separate agencies. Therefore, receiving workers' compensation does not impact your eligibility for SSDI benefits.

However, the Social Security Administration does stipulate that the total income you receive from workers' compensation and SSDI together cannot combine for more than 80 percent of your pre-disability income. If what you receive from both programs is greater than 80 percent of your income, SSA will deduct your SSDI benefits by the amount needed to bring your combined benefit amount under the 80 percent threshold.

How do I claim workers' compensation benefits?

If you suffer a work-related injury or illness, it's critical that you take action by reporting it immediately. Generally, you are required to provide notification within 30 to 45 days. Reporting delays can adversely impact a workers' compensation claim.

When doing so, be prepared to provide necessary details like the date, time, place of the injury, and how it occurred. If the claim is based on a specific accident, provide any witnesses to the event.

If you’re filing a claim for a condition that developed over time, the clock typically starts toward your deadline when:

  • You first took time off from work.
  • You first knew your injury or illness was caused by your work.

Once you’ve alerted your employer, the company should submit a report to the state workers' compensation board and its insurance carrier.

Your employer should provide you with reporting forms that are submitted to the insurance carrier and the state board. You should also receive information on your rights and workers' compensation benefits, as well as information about returning to work.

Most state processes also require that employees notify their employers and the insurance company, in writing, when they have recovered and intend to return to work.

If your claim is denied, you can submit an appeal to the state workers' compensation board. It’s recommended that you enlist an attorney who specializes in workers' compensation claims if you are denied and need to appeal.

Jack Wolstenholm is the head of content at Breeze.

The information and content provided herein is for educational purposes only, and should not be considered legal, tax, investment, or financial advice, recommendation, or endorsement. Breeze does not guarantee the accuracy, completeness, reliability or usefulness of any testimonials, opinions, advice, product or service offers, or other information provided here by third parties. Individuals are encouraged to seek advice from their own tax or legal counsel.

— Published August 23, 2019
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