Definition
Workers' compensation is a form of insurance that pays wage replacement and medical benefits to employees injured or made ill by their jobs. For private-sector and state and local government employees, coverage is run through state workers' compensation systems rather than a single federal program.
Also known as: workers comp, workers' comp insurance
How it works
An employee reports a work-related injury or illness to the employer, who notifies its insurance carrier or state fund and files the claim paperwork required by the state. The carrier decides whether the claim is covered and pays medical treatment and, where applicable, partial wage replacement while the employee cannot work. Some programs also provide vocational rehabilitation.
The U.S. Department of Labor notes that its Office of Workers' Compensation Programs administers four federal programs for specific groups, such as federal employees. Workers employed by private companies or by state and local government agencies are directed to their state workers' compensation board. Rules on who must carry coverage, benefit levels, and claim deadlines therefore vary by state. Employers typically pay premiums based on payroll classification and claims history.
Example
A warehouse employee strains a shoulder lifting inventory. The employer reports the injury to its carrier, the claim is accepted under state rules, and the carrier pays for treatment and part of the missed wages.
How it differs from similar terms
Workers' Compensation vs Professional Employer Organization. A professional employer organization can provide workers' compensation coverage under its own policy as part of co-employment. Workers' compensation itself is the insurance benefit, not a service model.
Related terms and guides
Frequently asked questions
Who administers workers' compensation?
It depends on the employee. The U.S. Department of Labor administers four federal programs for specific groups. Employees of private companies and of state and local governments are directed to their state workers' compensation board, so most employers deal with state rules.
What does workers' compensation cover?
According to the Department of Labor, benefits include wage replacement, medical treatment, vocational rehabilitation, and other benefits for people with workplace injuries or occupational diseases. Exact benefit amounts and eligibility depend on the program or state system that applies. Employers should check their state board for specific rules.