Understanding Workers' Compensation Benefits: Wage Replacement Rates

Workers' compensation only replaces about 67 percent of a disabled worker's wages.

When a worker becomes disabled in America, a number of government-run disability programs can help with the financial costs of the disability. Workers' compensation is one of the major programs designed to replace a disabled worker's lost wages. While workers' compensation pays a reduced percentage of the worker's previous earnings, because its payments are tax free, the net result is a nearly full replacement of a disabled worker's earnings.

Workers' Compensation

Workers' compensation is a disability program run by state governments in the United States. Employers must pay into the workers' compensation program. An employee receives workers' compensation payments if he becomes sick or injured while working. This payment is made to compensate for lost wages or to pay medical bills, or both. An employee receives workers' compensation even if the accident is his fault. As long as he becomes injured or sick at work, he will receive workers' compensation. In exchange for this payment, he gives up the right to sue his employer for the injury.

Percent of Salary

The amount of workers' compensation payments you will receive is based on your pre-injury earnings. The typical amount is about 67 percent of your previous earnings, roughly two-thirds of your working salary. These payments are not subject to income taxes. With this tax savings, the result of workers' compensation is that a disabled worker receives roughly the same payment as when she was working. The program is designed to replace close to 100 percent of lost earnings.

Social Security Disability

A disabled worker on workers' compensation may also qualify for Social Security disability payments. These payments will be made on top of the worker's compensation payments. Social Security disability benefits are paid for long-term disabilities. You will not receive Social Security payments until you have been disabled for at least five months. The amount of payment you will receive is based on what your salary was before you became disabled.

All Benefits as Percent of Salary

The government sets a limit on the total amount of government disability payments a worker can receive. If too much was paid in disability payments, workers would have an incentive to stay on disability and not return to work. A disabled worker cannot receive more than 80 percent of her previous salary in total payments from workers' compensation and Social Security disability benefits. If her expected benefit will total more than 80 percent of past earnings, her Social Security disability payments will be reduced until the total payments are at the threshold.