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Workers’ compensation law is a system of rules in every state designed to pay the expenses of employees who are injured while performing job-related duties. Employees can recover lost wages, medical expenses, disability payments, and costs associated with rehabilitation and retraining, as determined by each state. The system is administered by the state, and financed by mandatory employer contributions. Federal government employees have access to a similar program.
States have adopted workers’ compensation laws to replace traditional personal injury litigation, to remove risk for both the employee and the employer. Workers’ compensation eliminates the possibility of litigation that could lead to a large damage award. Workers’ compensation is an insurance program, made compulsory by the government.
Every state provides certain exceptions, allowing workers to bypass the workers’ compensation statutes and file a lawsuit for damages. These include situations in which the employer or a coworker has intentionally caused harm to the worker. Exceptions may also exist for workers injured by defective products, or exposed to toxic substances. Furthermore, workers are free to file suit against third parties, such as drivers, landowners, and subcontractors.
Financial Requirements for Workers’ Compensation
Workers' Compensation is unlike any other type of small business insurance in that it is regulated by the states. In fact, 49 states require all businesses with employees to carry workers' compensation insurance (the exception is Texas). While this means that having workers' comp is a unifying thread for businesses with employees, it also means the cost of this coverage varies significantly from one state to another.
Naturally, varying coverage requirements come with varying prices. The cost of workers' compensation insurance can range from $.75 per $100 in wages (Texas) to $2.74 per $1000 (Alaska). But those numbers are deceptively simple: they encompass all types of jobs, which means they don't reflect the variations within states that account for different risk levels. Because any of these factors can greatly impact the cost of insurance coverage, it's difficult to estimate a company's premium without knowing certain details of its operations.
What Does Workers' Compensation Insurance Cover?
Workers' compensation insurance covers the costs associated with illnesses or injuries your employees suffer while working, including:
Legal costs associated with defending your company against an employee's injury claim
Settlements or judgments for which your company is found liable (e.g., medical bills or payments for mental distress)