How Does Workers’ Comp Work?

By Diane Tait

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Since the 1920’s workers’ compensation has benefited workers in this country should they become injured, incapacitated or killed while on the job.  Prior to that, injured workers were required to sue their employer for their injuries and loss of income.  Worst still was that employees had to wait months for any financial assistance, which could prove devastating for workers and their families.  Many of the awards that were awarded by courts were arbitrary since there was no defined system or scale that determined what an injury or a life was worth.  Worse still was the fact that many workers lost their cases in court or had a substantial amount of their award eroded by attorney’s fees.  By the middle of the 19th Century, it was clear that something had to be done.

Oddly enough, it wasn’t the federal government who stepped into the fray.  In 1855, both Alabama and Georgia passed Employer Liability Acts that helped streamline the process that allowed injured workers to litigate against their employers.  Within 50 years more than two dozen other states enacted similar legislation.  However, it wasn’t until 1917 that employers were obligated to purchase workers compensation insurance that guaranteed injured employees would be paid for any injury or death without having to go through the trouble and expense of bringing suit.  Even that wasn’t surrendered without a fight that reached the Supreme Court when the New York Central Railway Company argued unsuccessfully that an employer’s due process rights were unfairly impeded by mandatory workers’ compensation.  After this ruling was issued it no longer required the employee to prove that the employer was at fault, even if the employee’s negligence contributed to the injury.

Today, US employees who get injured on the job can expect to receive medical care and financial compensation for any injury that results from a workplace accident.  While workers’ compensation is legislated and regulated through the State, unless a business is deemed large enough to self-insure, most small to mid-sized businesses acquire their coverage through an approved insurance company.

Who needs to carry workers comp?

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While the standards vary from state to state, in Florida any employer with four or more employees is required to carry workers comp, regardless of whether the employees are employed full or part time.  One exception to the rule is construction companies that are required to carry workers comp as long as they have one or more employees.  Another are farmers with five or more employees and/or twelve or more seasonal workers.

That doesn’t mean that everyone in a firm needs to be covered.  An officer of a company may opt out.  To opt out requires the officer own at least a 10% of the company and he or she fills out a state mandated application to determine eligibility.  Once completed and approved, the officer is barred from receiving any compensation should he or she be injured on the job.
How much coverage is an employer required to carry?

While the amount of coverage is different in every state, this doesn’t negate an employer’s responsibility to make sure the minimums are met.  In Florida, an employer could be fined if their company has insufficient workers’ comp coverage.  This includes subcontractors and independent contractors of a general contractor and out of state employers who have at least one full or part time employee working in the Florida construction industry.  Even insurance companies issuing workers comp are required to be licensed in the state of Florida.  If you’re unsure as to whether your company has adequate workers’ comp, your best bet is to discuss the matter with an insurance agent that specializes in this kind of coverage.

What does workers comp coverage cover?
Should a worker be injured, maimed or killed on the job, workers comp is designed to compensate the employee for:

      1.      medical care
      2.      long-term or permanent injuries
      3.      lost wages
      4.      retraining costs
      5.      benefits to survivors if a worker is killed on the job

Another protection of workers’ comp is that most states prohibit employers from retaliating against workers who file a claim.  Any such action or a threat of action by an employer should be reported immediately to the nearest workers’ compensation office.

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Benefits to employers include the cost and time involved in defending themselves in court since employees who opt for workers comp waive their right to sue their employers unless their injury was caused intentionally.  It also precludes them from having to directly compensate any covered employee from a job-related injury.  That being said, many states exclude business owners, independent contractors, farmers, volunteers, railroad and maritime employees from acquiring coverage.  Federal workers are covered under the Federal Workers’ Compensation Insurance Program.

When is a worker not covered by workers’ comp?

While workers’ comp is designed to be comprehensive, it’s not all-inclusive.  Should an employee be injured on the way to or from work, benefits can be denied.  If an employee tests positive for drugs or alcohol, benefits can be denied.  If an on-the-job injury is found to be self-inflicted, benefits can be denied.  If the employee is found to have been ignoring company policy or in violation of the law, benefits can be denied.

While the regulations and compensation vary from state to state, workers comp doesn’t have to be complicated to employ.    

Diane Tait owns and operates A&B Insurance.  To find out more about how you can save money on insurance, go to her site or fill out the form at right.


  1. Great information about Workers comp. I have always found it a little confusing.

  2. What amazes me is how long it took this country to start protecting workers.


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