Workers' compensation claims top out at more than $62 billion every year. With that kind of money in play, it is no surprise that carrying workers' compensation insurance is mandatory for nearly all employers in the United States.
But knowing it's a good idea and understanding how it works are very different things. Keep reading now to learn how workers' compensation payments work and what you as an employer need to know about the system.
What Is Workers' Comp?
Workers' compensation is a form of insurance. Like all types of insurance, it is designed to protect policy-holders from costly disasters.
All employers, with very few exceptions, must purchase and maintain workers' compensation insurance policies. Doing so keeps them compliant with state and federal laws. It also protects them and their employees.
Workers' Compensation Protections for Employees
In the event that an employee is injured or becomes ill, their employer's workers' compensation policy will pay for their expenses. This includes:
- Injury- or illness-related medical care
- Lost wages
- Vocational rehabilitation (where necessary)
- Death benefits
Workers' Compensation Protections for Employers
Workers' compensation programs also protect employers. First, they spare employers from directly shouldering costly worker injuries or illnesses.
Second, they provide legal protection. Workers covered under workers' compensation policies generally cannot sue their employers for damages.
How Does Workers' Comp Work?
How does workers' comp work, exactly? The details can vary from state to state. Typically, however, the basics of workers' compensation can be summed up as follows.
Employers Pay Into a Fund
Most states require that employers pay into a single, state-run workers' comp fund. In rare cases, employers may be allowed to pay into privately-held funds or to maintain their own dedicated in-house funds.
In all cases, the amount of money to be paid varies by:
- Industry
- Worker or job classification
- Company history
Companies in particularly hazardous industries or who employ workers in jobs federally classified as dangerous pay higher rates. Companies with poor safety records also pay higher rates.
Injuries Occur and Are Reported
When employees are injured, they must report the injury to their employer. The employers then document and report the injury to the policy-holder. Usually, this is the state-run fund.
Claims Are Processed
Once injuries have been reported, an investigation begins. The investigation seeks to determine:
- The nature and cause of the injury or illness
- Whether any parties (e.g. the employer or employee) played a role in or are responsible for the incident
- Whether the case is covered under workers' comp
Not all injuries or illnesses are covered.
In some cases, investigations may uncover special circumstances that allow employees to sue their employers even while receiving workers' compensation. Typically, this involves:
- Intentional negligence or malice on the part of the employer
- Employees acting outside of the scope of their contracted employment on direct orders from their employer
Payments Are Made
If an injured employee's claim is found to be both valid and covered, payments will be made. These payments do not come from the employer, but from the workers' compensation fund into which they have paid.
That said, employers play a key role in tracking and managing costs, payments, and follow-up.
How Workers' Compensation Payments Are Determined
State funds who pay workers' compensation payments use several factors to determine what is paid and when. They consider:
- The employee's standard pay
- The nature and seriousness of the injury or illness
- Actual costs of approved medical treatment
Employees must be treated by approved medical professionals. They must receive treatments recognized as appropriate for their conditions, and provide documentation of the same.
Employer's Responsibilities
Once a claim has been made, many companies find themselves past the workers' compensation basics they know and floundering amid new questions. What are their responsibilities? How do they manage them?
Fortunately, there are only a few key things employers really need to know.
Prevent Fraud
Workers' compensation fraud is a crime with serious consequences. Employers are responsible for preventing fraud in two ways. First, they must provide only honest and accurate information to authorities when purchasing policies and reporting claims.
Second, they take care when processing employee reports of injury. Employers should verify that incidents did occur as reported and that employees sought documented medical help. This can prevent employees from filing false claims.
Work With the Fund
Employers should offer full cooperation to the workers' compensation fund and its representatives. They should be open, honest, and prompt about returning calls and answering requests. This allows claims to be handled in a timely and efficient manner.
It also protects employers from fines and other potential penalties.
Avoid Discrimination
Discriminating against employees involved in workers' compensation cases is illegal. Managers, supervisors, and coworkers must be aware of the potential for discrimination and actively avoid it.
Get Employees Back to Work as Soon as Possible
One of the best things that employers can do for themselves, their operations, and their employees is to get injured employees back on the job as soon as possible. Often this means finding light-duty positions they can hold until they are fully recovered and prepared to return to their standard positions.
Web-based software platforms can help employers manage and optimize this process. The best such platforms boast easy-to-use interfaces that walk employers through how it works and help them stay compliant with legal and medical restrictions and requirements.
Information Is Power
The more you know, the better equipped you are to succeed. Now that you have a better understanding of workers' compensation payments, browse our site for other great articles that can help you and your business do better on other fronts, as well.
