How Does Workers’ Compensation Work?

Employers and employees typically don’t ask, “How does workers’ compensation work?” until after a work-related injury or illness occurs. While you don’t necessarily need the specifics of filing a workers’ comp claim with your insurance company until an injury arises, it’s helpful to be familiar with the general claim-filing process. Everyone who carries or is covered by workers’ compensation insurance should broadly understand how it works.

Employers pay for workers’ comp coverage

Most states’ workers’ compensation laws require employers to carry workers’ compensation insurance. Employers are responsible for workers’ compensation payments and cannot deduct workers’ comp premiums from employees’ paychecks.

Premiums for high-risk jobs, such as construction, can be substantially more than what lower-risk employers pay. Employers might purchase workers’ comp insurance through a state agency or private insurance company or, in some cases, they self-insure. The available options depend on an employer’s state.

Should employers not purchase workers’ compensation when it’s required, those illegally uninsured employers can face regulatory consequences and employee lawsuits.

Workers’ compensation pertains to work-related injuries and illnesses

Because workers’ compensation policies are regulated by state agencies, workers’ compensation coverage statewide is typically uniform regardless of the underwriter.

Workers’ compensation normally covers workplace injuries and illnesses that employees sustain. These can include:

• Acute injuries (e.g. machinery accidents, injuries while moving heavy items).
• Chronic injuries (e.g. repetitive motion injury, lower-back injury due to posture).
• Acute illnesses (e.g. disease contraction from blood exposure).
• Chronic illnesses (e.g. from toxic chemical exposure).

In the event of illnesses, employees should keep in mind that the harm must be directly attributable to their workplace. For example, the cause of hearing loss may be questionable if only 1 employee who frequents rock concerts experiences it. A claim is more likely to be approved by a workers’ compensation judge if most employees at a facility experience some hearing loss.

When a workplace injury or illness occurs, workers’ compensation benefits normally cover lost wages and appropriate medical care. Most specifically, an injured employee’s workers’ comp benefits can extend to:

• Immediate medical expenses.
• Ongoing medical costs.
• Lost wages (usually after a brief waiting period).
• Disability benefits (for temporary, long-term, or permanent disability).
• Death benefits (for survivor beneficiaries).

Essential workers and actual employees are normally covered. People working on independent contracts are less likely to be covered.

The workers’ compensation claim process

In the event of workplace injury or illness, both employers and employees undertake some of the workers’ comp claim effort. The claims process for workers’ comp works as follows:

• Employee reports: The employee is responsible for reporting the injury or illness to the employer. This typically requires filling out a form with the employer, although small businesses might have a less formal process. Employees should report even minor injuries that perhaps won’t require a workers’ comp claim, as these may become more serious. There’s no need to fill out the form first for injuries that require immediate medical care. Employees can seek appropriate medical treatment for acute injuries and illnesses, tell their employers, and make the official report later.
• Employer reports: If the injury/illness will or may require a workers’ compensation claim, the employer is responsible for reporting the injury. This usually requires filling out a workers’ compensation claim form with the appropriate insurance provider (the employer’s TPA if self-insured). The insurer can provide the form upon request and guide an employer through its particular reporting process.
• Claims administrator reviews: The insurance provider reviews the claim, just as any other insurance carrier would. This could be a private insurance company, state agency, or TPA. Assuming the insurance carrier agrees with the claim, they’ll distribute appropriate lost wages to the employee and cover related medical treatment. If the insurer questions or denies the claim, it can be reviewed by a workers’ compensation board. This is usually a state-run board that’s objective and qualified to make a final determination.
• Employee documents: The insurance provider will likely request documentation for the initial claim and any ongoing costs. This often includes medical records and bills related to the claim. Employees often can have medical providers send over the information; they might also have to provide some details themselves.
• Benefits paid: Benefits will continue to be paid for the duration of the claim, except in the event of a fatality. In that case, beneficiaries may receive a lump sum payment.

Can employees sue for workplace injuries?

In most states, workers’ comp insurance doesn’t technically stop employees from suing for injuries and illnesses. Employees normally must choose between suing and filing a workers’ compensation claim. The vast majority of employees choose workers’ comp.

Once a workers’ comp claim is filed, the injured worker normally can’t sue their employer. Most workers’ comp policies have a clause that prevents lawsuits if a claim is filed. Employees thus forgo the right to sue when they file a claim even if the claim is denied.

Most employees choose the workers’ compensation claim option, as it’s better for both them and the employer. In comparison:

• Lawsuits often involve enormous costs and uncertain outcomes. Additionally, any benefits awarded won’t be paid until the suit is settled. That can take months or years.
• Workers’ compensation claims have no employee costs, are easier to determine, and begin paying workers’ comp benefits almost immediately.

Learn more about workers’ compensation

An employer’s workers’ compensation provider is the best resource for specific details on how their workers’ comp works. For a fuller overview on workers’ comp coverage, see our free informational guide What Is Workers’ Compensation. For state-specific details on workers’ compensation law and requirements, contact your state’s workers’ compensation board.

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