What is Workers Compensation?

Workers compensation is a type of insurance that employers purchase in order to provide coverage for employees who may suffer from a job-related illness, disability or injury.

The insurance is mandated by the state, although different regulations may exist from one state to the next. Its main purpose is to ensure that employees receive the assistance they need in case of an injury and that employers are covered from legal complaints as a result of that injury. If an employee collects and receives workers compensation, he or she cannot file a case against the employer.

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What Type of Worker's Compensation Coverage can Employees Expect?

A worker's compensation program will generally cover the following:

  • Cost of medical care for illness or injury
  • Compensation for permanent injuries the employee may sustain
  • Lost income during the employee's period of treatment and recuperation
  • Cost of retraining the employee
  • Benefits to beneficiaries in case the employee is killed while at work

Aside from permanent and long-term coverage for the injured employee, workers compensation also provides protection for any health issues and illnesses that may develop because of frequent and constant exposure to a work-related activity. Depending on the agreement with the employer, compensation may consist of regular payments or a one-time lump sum benefit.

Who Can Receive Workers' Compensation Coverage?

Most employees are allowed coverage, although states commonly exclude the following:

  • Volunteers
  • Business owners
  • Independent contractors
  • Causal workers
  • Railroad or maritime employees
  • Farmers, farmhands and other workers in most agriculture-based work environments
  • Employees of private individuals
  • Federal government employees (they are covered by the Federal workers compensation program but not by the state program)

Are All Employers Required to Purchase Workers' Compensation Coverage?

That depends on the nature of the job and employer-employee relationship. For owners of small businesses, it is a good idea to determine any exceptions that may be imposed by the state where the business is operating. In California, for example, a company is required to provide workers compensation insurance if it employs one or more employees. In Alabama and Florida, the minimum number of employees is four. In Texas, employers are not required to purchase workers compensation insurance.

However, the state does require that employers explicitly inform employees that there is no coverage. Regardless of the location of a business, it is a good idea for employers to consider how workers compensation insurance can provide them and their employees with sufficient protection. It can be a wise business decision as well.

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