What is workers' compensation?

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Aerial view people in hard hats working in factory

Workers’ compensation is important insurance coverage for both employers and employees because:

It can provide benefits to an injured or ill worker without having to go to court
It helps protect a company from a lawsuit that could damage it financially
It’s a “no-fault” system; neither the employee nor employer must be found legally “at fault” for the insurance to pay out benefits

Most employees are covered by their employers’ workers’ compensation insurance, and most businesses purchase workers’ compensation through private insurance companies.

The three key parts of workers’ compensation are the types of policies available to an employer, the benefits the worker receives, and how the coverage is paid for.

How does workers’ comp work?

An employer pays payments to an insurance provider
An employee gets injured, sick, or disabled because of their work or job
A claim is made to the insurance company
Benefits are paid to the employee for lost salary or medical bills from the insurance company

While the workers’ comp process may seem simple, there are several factors that affect whether a claim is paid out. So, it’s important to understand the specific policy terms. Some factors include:

Bodily injury location
Injury severity
Recovery duration
Potential return to work
Policy type
Worker’s job qualifications

Workers’ comp examples

What’s covered by workers’ compensation insurance isn’t always obvious because workplaces and work duties vary. Some incidents that may be covered by workers’
compensation include:

An employee is injured while driving a company car for work
A remote worker sustains a job-related injury away from company property
A worker catches an illness while handling hazardous job-related materials offsite

There are many variables. What is covered in one state may not be covered in another.

Workers’ compensation requirements by state

In the U.S., workers’ compensation is primarily regulated at the state level. Therefore, workers’ compensation laws, benefits, requirements, and penalties for not purchasing workers’ compensation insurance are different from state to state—often significantly.

In most states, companies can purchase workers’ compensation insurance from any private insurer, subject to state requirements.

If you have specific questions about workers’ compensation requirements for your state, contact the U.S. Department of Labor.

What is the cost of workers’ compensation?

The cost of workers’ compensation varies by policy rate and employees' salary. Here's an example to help you understand how the cost of workers' comp is calculated:

Generally, insurance providers start with a base rate (for example, $.30 per $100 in payroll). If a business pays an employee $40,000, the starting premium for that employee would be $120.

A company’s base rate can vary and is affected by multiple factors:

Worker tasks and jobs
Industry risks
Claims history
State requirements
Policy types

What are types of workers’ compensation?

There are different types of workers’ compensation benefits, such as wage replacement, disability benefits, or payments for medical treatment costs, but there are also different types of workers’ comp plans or policies.

Plans are categorized by features that can be complex but generally don’t affect the benefits awarded to employees.

From the employers’ perspective, however, understanding what types of plans are available—or required—can be important for complying with state law and controlling costs, among other reasons.

Depending on the industry, state, and laws, there are several sources of insurance:

Federal workers' compensation programs, which are for specific types of federal employees.
State workers’ compensation plans are available in specific states.
Private business insurance companies, like Sentry, offer workers’ compensation plans.

Policy types can also vary depending on how they’re structured:

Guaranteed cost plans resemble most other kinds of insurance, offering predictable premiums and simple claims processes.
Loss-sensitive plans are based on actual losses at the company or business. They come in many varieties, such as retrospective rating, small deductible, large deductible, and self-insured retention plans.
Self-funded plans aren’t insurance policies in the traditional sense but are an option for companies with substantial resources and complex risks.

How do you file a workers’ compensation claim?

Filing a claim for workers’ compensation is not the same as filing a claim for other types of insurance. Because workers’ compensation insurance is carried by the employer and covers injuries and illnesses affecting employees, the process for filing and managing a workers’ compensation claim involves multiple parties.

Before filing a claim: An employer pays an insurance company for a workers’ compensation plan.
After an accident or illness occurs: Once safety concerns are addressed and proper medical attention is underway, the supervisor should help determine the appropriate course of action. They should also complete an injury or illness report with the help of the employee. The supervisor should also communicate with the employee about workers’ compensation procedures.
Reporting a workers’ compensation claim: The company will file the accident or illness report with its insurance provider.
Managing a claim, recovery, and returning to work: The supervisor, employee, insurance provider, and medical professionals will communicate to ensure appropriate benefits and the affected employee’s possible return-to-work timeline.

Learn more about workers’ compensation

Understanding how workers’ compensation works—and what type of benefits are available or who pays for them—is a complex conversation. Each case requires individualized attention and consideration, as many factors depend on which state’s rules apply, among other variables.

That’s why we’re here to help employers and their teams fully understand what they need to know about workers’ compensation and how to get a plan that meets their unique needs.

You can prepare for a personalized conversation about your workers’ compensation goals, budget, and requirements by exploring the wide variety of workers’ compensation plan types we offer.

The Sentry difference

What isn’t covered by workers’ compensation?

Workers’ compensation benefits won’t cover the cost of medical treatment for injuries or accidents that occurred outside of work or for pain and suffering. State and federal laws and policies define work-related injuries.

Incidents that may not be covered by workers’ compensation include:

Accidents or injuries that occur outside of the workplace or in non-work capacities
Example: If a food worker accidentally cuts their hand while in their own kitchen
Accidents or injuries that occur while an employee is intoxicated
Example: If an employee reports to work under the influence—and an injury happens—this worker may have forfeited their right to workers’ compensation
Accidents or injuries that are proven to have been caused by an intentional, risky, non-work activity at the workplace
Examples: Horseplay, accidents, or illnesses stemming from practical jokes
The accident or injury occurred at the workplace, but not in the scope of work
Example: An employee accidentally hurts their leg while in the office gym. Unless they’re hired as a fitness instructor, required to use the gym, or attending a mandatory event, this injury may not qualify for workers’ compensation, depending on specific facts and state jurisdiction.

When you’re not sure, report the incident and let the process sort it out.

Generally, if it’s determined that a worker is injured while performing their job, workers’ compensation can likely provide benefits, from medical coverage to wage replacement.

Can an employee sue their employer if they’re injured at work?

One core benefit of workers’ compensation is that it helps prevent lawsuits by providing benefits without the need to establish fault. Often, workers forego the right to take legal action when they accept workers’ compensation.

However, a worker may still have the right to sue their employer in any of the following scenarios:

The employer doesn’t let its staff know their right to reject workers’ compensation
A worker refused workers’ compensation before their injury or illness occurred
The worker or incident has a cause of action as interpreted by a court of law

Can employees lose their job due to an injury?

Any serious accident or illness can leave an employee physically unable to perform their job. It’s important to note that an employer can’t fire an employee for filing a workers’ compensation claim—it’s legal and protected.

Examples where an injury or illness could lead to job loss include:

An audio engineer experiencing permanent hearing loss
A driver is unable to perform their job due to a vision impairment
A salesperson unable to travel due to a chronic illness

Can employees work while on workers’ compensation?

Yes, employees can receive workers’ comp benefits while working.

Wage replacement: While it’s more common for an employee to receive wage replacement only to compensate for lost hours of work, it is possible—in some states and under certain circumstances—for a worker to receive wage replacement through workers’ compensation while continuing to work.
Other workers’ compensation benefits: Medical treatment, rehab, or disability are independent of the employee’s ability to work, meaning that even if an employee is able to quickly return to their job, the costs for an initial hospital visit and continuing medical treatment are still covered.

Do employees get full pay while on workers’ compensation?

Workers’ compensation doesn’t pay a full salary. However, employees are entitled to a certain percentage of what would have been their regular gross wage. Amounts may differ, with minimums and maximums varying by state. Tax implications and company benefits may also affect benefit amounts.