Most business owners know that workers’ compensation covers employees when they’re injured on the job. However, they may not know that most policies also pay their legal fees if an employee decides to sue for their injuries. Understanding workers’ compensation coverage can come in handy should you ever have to file a claim.
Key Highlights: Workers’ Compensation Coverage
The majority of states use a standardized workers’ compensation insurance policy created by the National Council on Compensation Insurers (NCCI). This policy actually has two coverage parts. The first coverage is the one most people understand as workers’ comp insurance and pays benefits to employees who suffer a work-related injury or occupational disease.
Part two, the lesser-known workers’ compensation coverage, is also called employer’s liability insurance. It covers lawsuits when workers’ comp doesn’t apply. For instance, an employer’s liability may kick in if:
- An injury or illness isn’t covered by the state’s workers’ comp law: Take, for example, mental health claims. Some states don’t cover these even if they’re connected to the employee’s job so that a worker may sue. Employer’s liability covers the employer’s legal fees.
- The worker believes their employer was negligent: Injured employees can reject the benefits provided in part one if they believe their employer’s negligence caused their injuries.
- The employee isn’t covered by the state’s workers’ comp law: In some states, employers aren’t required to cover certain workers like corporate officers or domestic workers. If these employees are injured, they can sue for damages.
These are just a few situations where workers’ compensation insurance benefits the employer directly. However, four states (North Dakota, Washington, Ohio, and Wyoming) do not include employer’s liability in their workers’ compensation coverage. Employers in these states can look into stop-gap coverage to protect their businesses fully. Take the quiz below to find out which workers’ comp provider is right for you.
Which Workers’ Compensation Insurance Provider is Right for You?
What Injuries Are Included?
For an injury or illness to be covered by workers’ compensation, it has to have occurred within the course and scope of employment. That simply means the injury has to be connected to the employee’s assigned duties.
Let’s look at an employee’s car accident, for instance. If an employee is in a car accident while running an errand for the employer, the injury is most likely covered. However, the same injury isn’t covered if the accident happens on the commute.
While that example uses a sudden traumatic injury, that’s not the only type of injury that counts for workers’ comp. In most states, claims can also be filed for:
- Repetitive stress injuries: These injuries are typically caused by overuse like carpal tunnel syndrome or chronic back problems.
- Occupational illnesses: Typically, occupational disease is the result of exposure to hazardous materials, such as mesothelioma, but hearing loss and stress-related illnesses like post-traumatic stress disorder can also fall in this category.
- Additional traumatic injury: Some states cover injuries stemming from workplace violence, terrorist attacks, and natural disasters.
Employees with preexisting conditions, such as degenerative disk disease, that are exacerbated by their work can also file workers’ comp claims. Typically, coverage only applies to treatment for the new injury, and their disability benefits are often reduced.
Does Workers’ Compensation Insurance Cover COVID-19 Infection?
The best answer to whether workers’ compensation covers the coronavirus is “it depends.” State workers’ comp laws vary, so exposure to infectious disease may fit some states’ definitions of occupational illness. At the very least, workers in the healthcare industry and other first responders may argue for compensable claims.
States are beginning to share information regarding their workers’ compensation coverage and COVID-19 on government sites. New Jersey’s Department of Labor and Workforce Development, for one, has a page with details on who may be eligible for benefits. Additionally, the governor of North Dakota signed an executive order providing workers’ comp benefits to frontline workers who contract COVID-19 on the job.
What Injuries Are Excluded From Workers’ Compensation Coverage?
Injuries that occur outside the scope of an employee’s assigned job duties are not covered by workers’ compensation insurance. But some workplace injuries may also be excluded in certain circumstances, including:
- Injuries that can be remediated with first aid: Small cuts and scrapes typically don’t warrant a workers’ comp claim.
- Injuries sustained while committing a crime: An example of this might be an employee breaking an ankle while hurrying through the office to hide the wad of petty cash they have stolen.
- Injuries resulting from horseplay: Workers’ compensation usually doesn’t kick in for an employee who gets knocked in the head while goofing around.
- Injuries that occur when the worker is violating company policy: A common example of this is if a worker does not wear safety gear required by the business.
- Injuries sustained when the employee is intoxicated: Workers’ comp generally doesn’t pay if an employee is drunk or high at the time of the injury.
- Injuries occurring during voluntary social events: An employee who is injured during a company softball game usually has to cover their own medical bills. However, if the person can show that participation was mandatory, they may receive benefits.
One situation where coverage is questionable is break time. Some states see onsite breaks as beneficial to the business owner and cover injuries that occur during breaks on company property. This, however, isn’t always the case.
Who Does Workers’ Compensation Insurance Cover?
Most of the 49 states that mandate workers’ comp coverage require employers to purchase policies as soon they hire a single employee. Many extend that requirement to part-time staff, family members, foreigners, and minors. The rest of the states say a business has to have a minimum number of employees before it has to buy coverage, often between three and five people. Meanwhile, Kansas says employers need workers’ compensation coverage once their payroll hits $20,000.
Common Workers’ Compensation Exemptions
Even when states obligate employers to carry workers’ compensation insurance, most list several workers who do not have to be covered. Some of the most common exemptions are:
- Business owners and sole proprietors
- Partners in a partnership
- Corporate officers
- Limited liability company (LLC) members
- Independent contractors
- Agricultural workers
- Real estate agents working on full commission
- Domestic workers like nannies or gardeners
- Casual laborers
Additionally, federal employees, longshoremen, and railroad workers get their workers’ compensation from federal programs, so they are not eligible for benefits from the state.
Workers’ Compensation Insurance Coverage for Out-of-State Employees
Out-of-state employees can cause some complications when it comes to workers’ compensation. Typically, there are two situations employers might face:
- Employees who always work in another state
- Employees traveling to another state for work
In both scenarios, the employer needs to know which state’s workers’ compensation laws to follow. Most states recognize the place where the employee does most of their work as the primary location so that the state’s laws typically take precedence. When an employer first buys a policy, they need to list all the states where they conduct business as well as the states that they anticipate conducting business. As they open operations in new locations, they must contact their insurer to add them to the workers’ comp policy.
That takes care of the first situation, but what about the second? In this case, there are two issues: Does the home state’s workers’ compensation coverage follow the traveling employee? How does the receiving state view that coverage?
The first answer is easy. Every state allows its workers’ comp coverage to follow the traveling employee. Sometimes, that coverage is limited, but for the most part, an employee who travels for work is covered.
The second one is much trickier because each state determines this one for itself. Some require all employers to follow their workers’ comp laws while others sign reciprocal agreements with other states. Others only have reciprocity in certain situations, such as in some industries, but not in others.
Long story short? It’s complicated, and that’s a good reason to work with an agent when buying workers’ compensation coverage for out-of-state employees.
What Benefits Do Injured Workers Receive?
When employees suffer on-the-job injuries or occupational diseases, they can file workers’ compensation claims for benefits from their state regardless of whose fault their injuries are. In exchange for these benefits, employees cannot sue their employers. This is what’s known as the grand bargain in workers’ compensation history.
The specific benefits depend on the state, but most governments offer the following four categories for compensation.
Workers’ compensation medical coverage pays for the injured employee’s medical treatments. This typically includes things like:
- Doctor appointments
- Prescription drugs
- Hospital stays
- Medical equipment
- Physical therapy
Depending on the state, an employee may also be able to get coverage for alternative treatments like massage or acupuncture and reasonable travel costs.
Injured employees are entitled to all appropriate and necessary medical treatment, so workers’ comp policies do not have deductibles or coverage limits. However, some states restrict coverage by limiting some types of treatments. For instance, a worker may only be allowed a certain number of physical therapy sessions.
Disability benefits are weekly benefits paid to injured workers to make up for their lost wages. Typically, employees receive about 60% of what they paid prior to being injured, although most states cap the total amount employees can receive.
There are four types of disability benefits:
- Temporary partial: The worker is expected to get better and can work at some capacity.
- Temporary total: The worker is expected to get better but cannot work at all while recuperating.
- Permanent partial: The injury will not get better and, while the employee can work, they cannot earn as much as they did prior to being hurt.
- Permanent total: The injury will not get better and keeps the employee from earning money permanently.
Almost every state has some sort of return-to-work program for injured employees. These programs often include career counseling, resume writing, and job training. A vocational rehabilitation counselor might also help injured employees figure out how to adapt their job duties to their abilities and limitations. Some states also provide psychological counseling in certain situations.
Family members and other dependents of a worker who dies from their injuries can apply for death benefits that provide financial support and cover funeral expenses. Like disability payments, death benefits are usually a percentage of the employee’s average weekly wage and are capped at a certain amount. Payments can be paid in installments, but some states also offer a lump sum settlement.
What If My Employer Doesn’t Have Workers’ Compensation Coverage?
Employees whose companies don’t have a workers’ compensation policy generally have two options:
- Sue their employer for personal injury
- File a claim with their state’s uninsured employers’ fund
Lawsuits can take months, even years, to complete, so an employee who goes this route may end up paying their medical bills out of pocket for a long time. Plus, they may have to prove the employer did something wrong in order to win the case. On the other hand, the payout can be greater than a workers’ comp claim because the judgment can include money for pain and suffering and punitive damages.
Filing a claim with your state usually gets money in your hand faster, but it limits how much you can receive in the same way workers’ compensation insurance does. Moreover, not every state has an uninsured employers’ fund, so you may want to check with your state workers’ comp board.
Employers should note that if they are required to carry workers’ compensation and don’t, they can face stiff penalties for noncompliance, including fines and sometimes even jail time. They can even be held liable for their employees’ medical bills, depending on state laws.
This article provides a general overview of what workers’ compensation insurance covers. However, every state has different guidelines that your specific policy must follow. To understand your workers’ compensation coverage, work with a licensed insurance agent, preferably one with lots of experience in workers’ comp.