Understanding Workers' Compensation in the U.S.: Coverage & Benefits

Workers compensation is a type of insurance carried by all businesses. When a person is injured on the job, workers compensation insurance covers the cost of treating the injury or illness as well as compensating a person for time spent away from work. Disability insurance is different because it will cover a person whether or not they are injured in a work-related accident. To qualify for coverage, the injury or illness must be a direct result of circumstances at work.

Workers Compensation is Required by Law

All 50 states require businesses to carry workers compensation insurance. It is usually part of a basic insurance policy, which also includes property and liability coverage. As soon as an additional employee is added to a legal company, the company must have workers compensation. If a person is working for himself or herself, the coverage is not required. If you are an employee of a company without workers compensation coverage, you may file a complaint with the state department of insurance. If you are a company without current workers compensation insurance, you need to check with your state department of insurance to determine your requirements.

Workers Compensation Varies by Industry

The requirements set at the state level mandate a minimum amount of workers compensation insurance for each company. Then, the insurance company will determine how much is truly needed due to the specific industry you are in. Companies working in manufacturing or transit will likely need greater insurance due to a higher incidence of injury. The same is true for companies that expose their employees to hazardous chemicals or situations. If your business is strictly "white-collar," meaning desk jobs only, your workers compensation will be much lower. Your insurance company will categorize you appropriately.

Workers Compensation is Tax Deductible

Business owners can deduct the workers compensation expense the same as any other business insurance expense. This issue is particularly important for small businesses to understand. Even if you and your employees work from home offices, the costs you spend on insuring those employees can be significantly reduced by proper tax filing. It is important to make sure your company is structured appropriately to get approved for both your insurance needs and your tax deductions. This means you have to have a business license and a tax ID number.

Workers Compensation Claims Need Documentation

In order for you to receive the benefits you have elected with your insurance company, you need to file all workers compensation claims appropriately. This first of all means you must document the accident or illness as it occurs in the workplace. Report the accident immediately; a delay could be reason to deny your claim. Taking statements from witnesses is important; because you will need proof the employee was actually performing a work-related activity. Next, you will need to make sure the employee keeps records of all medical appointments and costs associated with the accident. It may be necessary for him or her to be evaluated by physicians approved by your company's policy.