What It Is: Workers’ compensation refers to the state-mandated insurance program which provides compensation to employees who suffer job-related injuries and illnesses.  Each state has its own laws and programs governing workers’ compensation, although the federal government administers its own workers’ comp program for federal and certain other employees.

Typically speaking, no matter who was at fault (the employer, the employee, a coworker or customer or even some other third party), employees who have suffered a work-related illness or injury qualify for workers’ compensation benefits.  This does come with a caveat, however:  employees often lose the right to sue the employer in court for damages related to those injuries in exchange for the guaranteed benefits.  Keep in mind, however, that if the employee’s injuries occurred due to some reckless or intentional action on the part of the employer, he or she may be able to bypass the workers’ compensation system and sue the company.

Most states require that employers carry workers’ compensation insurance from reputable insurance carriers, although some states provide exemptions for very small businesses (usually those with fewer than 3 or 4 employees).  Also, some larger companies are allowed to act as their own workers’ compensation insurance carriers, AKA self-insuring.

Whenever employees are injured on the job, a claim must be filed with the insurance company (or self-insuring employer), who then pays medical and disability benefits that are governed by a state-approved formula.  While the workers’ compensation system was designed to provide benefits to injured workers regardless of who caused the injury, there are some limits.  Injuries that result because of an employee’s intoxication from alcohol or illegal drugs are not required to be covered by workers’ compensation.

The following circumstances may lead to coverage being denied also:

1) self-inflicted injuries, which includes the person starting a fight that leads to the injuries;
2) injuries suffered when the worker was committing a serious crime;
3) injuries suffered when the employee was not on the job; and
4) injuries suffered due to an employee’s violation of company policy.

Do You Need It? The most likely answer is–yes!  Unless you qualify for some of the exceptions (such as employing the minimal number of employees in a state that allows very small companies not to carry workers’ compensation insurance), your company must carry workers’ compensation insurance.  Additionally, it can certainly help your company’s reputation and image to current and potential employees; since they’ll know that your company will care for them should they suffer on-the-job injuries.