Workers' Compensation Insurance
Required coverage for employee work-related injuries and illnesses.
Typical cost: $500 – $5,000+ per employee per year
What Is Workers' Compensation Insurance?
Workers' compensation insurance provides benefits to employees who suffer work-related injuries or illnesses. It covers medical expenses, rehabilitation costs, and a portion of lost wages while employees recover. In exchange for these guaranteed benefits, employees generally cannot sue their employer for workplace injuries.
Legal Requirements
Workers' compensation is mandatory in almost every state (Texas is a notable exception). Requirements vary by state regarding which businesses must carry coverage, often based on number of employees. Failure to carry required coverage can result in severe penalties, including criminal charges.
How Premiums Are Calculated
Workers' comp premiums are based on your industry classification code, total payroll, claims history (experience modification rate), and state regulations. High-risk industries like construction and manufacturing pay significantly more than office-based businesses.
What's covered
Medical Expenses
Covers all reasonable medical costs related to work injuries including surgery, hospitalization, and medications.
Lost Wages
Pays a portion of wages (typically 66%) while employees recover from work injuries.
Disability Benefits
Provides ongoing payments for employees with temporary or permanent disabilities.
Rehabilitation
Covers physical therapy and vocational rehabilitation to return employees to work.
Death Benefits
Provides payments to dependents of employees who die from work-related causes.
Employer's Liability
Protects against lawsuits in limited circumstances where employees can sue.
Pros and cons
Advantages
- Required by law in most states—protects against penalties
- Provides financial protection for injured employees
- Shields employers from most injury lawsuits
- Covers full medical costs without deductibles for employees
- Helps maintain workforce stability during injuries
- Experience rating rewards safe workplaces with lower premiums
Considerations
- Mandatory expense that can be significant for high-risk industries
- Claims increase your experience modification and future premiums
- Complex classification codes can lead to audit adjustments
- Does not cover independent contractors
- Fraud investigation may be needed for questionable claims
Frequently asked questions
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