Workers’ comp: What it is and how it works

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To start, workmans’ compensation and workers’ compensation are the same business insurance.  

However, “workers’ comp” has become the preferred gender-neutral term rather than “workmans’ comp” as it’s more inclusive of all workers.  

“’Workmans’ Comp’, also known as ‘Workers’ Compensation insurance’, is coverage purchased by businesses to protect their employees and cover the costs for injury while in the course of employment with their company,” said Ryan Bradley, vice president of Commercial Underwriting Operations at Donegal Insurance Group.  

“The coverage typically covers medical costs, lost wages and disabilities that resulted from an accidental injury. Under Pennsylvania‘s workers’ compensation law, there is an ‘exclusive remedy’ rule: for most job-related injuries, the injured employee’s sole remedy against the employer is workers’ compensation, and not a negligence lawsuit in civil court.”  

Workers’ comp insurance can take care of companies and their staff should an employee be injured on the job. Required in most U.S. states, workers’ comp can help cover medical bills and a portion of lost wages while the injured worker recovers. In addition, policies can help pay for rehabilitation costs to help workers return to work, as well as death benefits for families in worst-case scenarios.  

While it overlaps with health insurance and disability insurance, workers’ comp is designed to cover workplace injuries and illnesses. Workers’ comp coverage typically includes falls, slips, equipment injuries; repetitive stress injuries that develop over time; work-related illnesses; and mental health conditions. That means workers’ comp can help cover obvious job-related injuries occurring from such things as slips and falls, etc., to the less obvious injuries, including carpal tunnel syndrome from repetitive movements while working.  

Determining the cost of workers’ comp depends on several factors, including industry; location; claims history; workplace safety measures; and total payroll. According to the National Academy of Social Insurance, the average rate is $1.01 per $100 of payroll, or approximately 1% of payroll.  

“There isn’t a one-size-fits-all price for workers’ compensation,” Bradley said. “The cost of Workers’ Compensation is calculated using your payroll and a classification rate tied to the type of work your employees do. Businesses with fewer employees or lower-risk roles pay less than higher-risk industries.  

“For example, an office-based employee yields less risk than an employee working on an excavation site, therefore office-based businesses often pay less for insurance than those with exposure to hazardous conditions.”  

Workers’ comp is generally required for a small business, but it depends on state laws and the business itself. Most state workers’ comp laws require coverage with the company’s hiring of its first employee, but there are exceptions. These exceptions can include extremely small businesses with less than three to five employees, as well as for particular types of workers, including independent contractors and seasonal workers, as well as specific industries with higher or lower risks.  

Business owners are allowed to self-insure in some states, but they must file a workers’ comp exemption with their division of workers’ compensation and proof of these resources.  

“Here in Pennsylvania, some businesses are exempt from workers’ compensation insurance requirements; this includes certain types of small businesses, and independent contractors,” said Bradley. “We recommend consulting with your local Independent Agent to talk through your unique coverage needs for your business.”  

There are several ways to get the most out of workers’ comp insurance, including making workplace safety a top priority; asking an insurance provider about safety programs and discounts that can lower a company’s premiums; and making certain the business receives the correct classification code. The latter is a four-digit number used by insurance companies to categorize a company based on its risk level.  

“Insurance companies that offer workers’ compensation coverage often provide a wide spectrum of resources to businesses to help improve workplace safety and prevent losses,” Bradley said. “These can include proactive safety programs, loss prevention education, and onsite visits from their insurance company’s Loss Control consultant.  

“After a loss occurs, your insurance carrier will be a helpful resource in supporting impacted employees with their return to work. Insurance-provided return-to-work resources could include connecting a business and/or employees with dedicated workers’ compensation physicians and nurse case managers who specialize in work-related injuries; and working with employers to prevent future accidents and plan an employee transition back to work.”