How Does Workers' Compensation Work?

Before diving in to the workers' comp system, make sure you understand the basics.

By , Attorney

Workers' compensation is a type of insurance that pays out when employees suffer work-related accidents and illnesses. Most employers are required to carry workers' comp coverage, though there are exceptions (see below).

Under state workers' compensation laws, employees aren't required to show that the illness or injury was their employer's fault in order to collect benefits. Instead, employees only need to show that the illness or injury happened at work or was work-related.

Workers' comp laws generally prohibit employees from filing personal injury or other lawsuits against their employers for job-related medical conditions. Instead, workers must seek redress through the workers' compensation system.

Each state enacts and interprets its own workers' compensation laws. Although this creates some variation from one state to the next, the systems tend to have many features in common.

What is Workers' Compensation?

The primary goal of workers' compensation is to eliminate the considerable expense and uncertainty that arise in most personal injury lawsuits. To accomplish this, workers' comp rules eliminate fault from the equation. What this means is that an employee who is harmed in a work-related accident or contracts a work-related disease can recover benefits without having to prove fault.

In addition, under the "exclusive remedy doctrine," the workers' compensation system is the sole remedy for workers who suffer work-related injury or illness. Employees cannot sue the employer in court for common law tort damages—if they want to collect benefits, they have to file a workers' comp claim.

This is significant because workers' compensation benefits do not include pain and suffering, so the benefits that an injured employee receives are often less than what might be recovered in a personal injury lawsuit.

In theory, the workers' comp system is a grand bargain that benefits both sides. The employee is compensated for a workplace injury without having to pursue a time-consuming, expensive, and uncertain lawsuit. And the employer avoids the risk of being hit with a large jury verdict that could damage the employer's reputation and cause financial hardship.

The Course and Scope of Employment

While the employee does not have the burden of proving fault, the employee can only recover workers' comp benefits if the injury or disease arises out of and in the course and scope of employment. Generally, there must be a causal connection between the injury and the performance of work and the injury must occur at a time and place associated with employment. Keep in mind that this is a fact-specific analysis.

A delivery driver who is injured in a car accident while delivering an order is clearly acting in the course and scope of employment. Suppose, however, that instead the driver has a heart attack at home after work one evening. The heart attack might be compensable if it can be proven that the heart attack was caused by workplace stress.

Both of these results, however, could be different if the facts were modified. The delivery driver would have a more difficult time obtaining compensation if the car accident occurred while he was running a personal errand after completing the delivery. Likewise, an employee who has a heart attack while mowing his lawn might have a more difficult time connecting his injury to work-related stress.

Exemptions from the Workers' Compensation System

State workers' comp laws provide exemptions for certain types of employers and employees. Here's a look at some of the most common ones.

Employer Exemptions from the Workers' Compensation System

Most states require employers with at least one employee to carry workers' compensation coverage. Some states exempt employers with as many as five employees from having to purchase workers' compensation insurance, though most employers purchase it anyway. Texas is unique in that it makes workers' compensation coverage optional for virtually all employers. Again, many employers in Texas decide to purchase coverage anyway.

Employee Exemptions from the Workers' Compensation System

Some types of workers aren't covered by the workers' comp system, so check the laws in your state. Farm workers, for example, are normally not covered by workers' comp. And special rules usually apply to seasonal and temporary workers.

Independent contractors are excluded from the workers' compensation system because they are not considered employees. This means that an employer could be sued by an independent contractor who was injured due to the employer's negligence.

Types and Amount of Workers' Compensation Benefits

Workers' compensation benefits can take many forms, including:

  • wage replacement
  • payment for medical care related to your illness or injury
  • vocational rehabilitation services
  • payments for permanent disabilities, and
  • death benefits for surviving family members.

Each state has its own formula to calculate the amount of wage replacement benefits available. Typically this amount ranges from half to two-thirds of a person's average weekly wage.

How to File a Workers' Compensation Claim

Most states have strict deadlines for reporting your injury to your employer and filing your workers' comp claim. And if your claim is denied, you'll only have a limited amount of time to appeal. The best advice is report your injury or illness to your employer as soon as you're aware of it, and file your claim as soon as you possibly can.

Talk to a workers' comp lawyer or contact your state's department of labor for information about the rules in your state. (Read more about filing a workers' comp claim.)

Federal Workers' Compensation

Federal workers' compensation is a separate system that applies to injured federal workers. It is administered by the Department of Labor's Office of Workers' Compensation Programs and typically provides many of the same benefits that are available under state law.

Seek Legal Advice

Workers' compensation is a complex area of the law. If you were injured on the job or have a question related to workers' compensation, contact an attorney in your state who specializes in workers' comp.

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