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. The employer tells its insurance carrier or state fund and files the claim forms the state requires. The carrier decides whether the claim is covered. It then pays for medical care and, while the employee cannot work, part of the lost wages. Some programs also pay for job retraining.
Each state runs its own system for private employers and for state and local governments. The U.S. Department of Labor runs separate federal programs for specific groups, such as federal employees. That is why rules on who must carry coverage, benefit levels and claim deadlines differ from state to state.
New York shows how a typical state system works. The employer pays for the insurance and may not make employees share the cost. No one is found at fault: a worker's own carelessness does not reduce the benefit. If the employer or carrier disputes the claim, a workers' compensation judge decides it.
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.
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Frequently asked questions
What is the simple definition of workers' compensation?
It is insurance that pays medical care and part of lost wages to employees who are hurt or become ill because of their job. Employers buy it, and each state sets its own rules.
How do workers' compensation claims work?
The worker reports the injury, the employer passes it to its insurance carrier, and the carrier decides whether the injury is work-related. If it agrees, it pays medical care and wage benefits. If it disputes the claim, the state's process decides; in New York, a workers' compensation judge rules on it.
What doesn't workers' compensation pay for?
It pays only for injuries and illnesses caused by the job. New York, for example, denies benefits when an injury results solely from the worker's intoxication or from an intent to injure themself or someone else. Each state lists its own exclusions.
Who pays for workers' compensation?
The employer. It buys the insurance, or pays into a state fund where the state allows it. New York's law says employers may not require workers to contribute to the cost.
Who administers workers' compensation?
It depends on the employee. The U.S. Department of Labor runs federal programs for specific groups. Employees of private companies and of state and local governments use their state workers' compensation board.
What qualifies for workers' compensation?
An injury or illness caused by the job. The employer reports it to its insurance carrier or state fund, and the carrier decides whether the claim is covered under that state's rules. In New York's no-fault system the worker's own carelessness does not reduce the benefit, while injuries caused only by intoxication or by an intent to injure are excluded.
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