Workers’ Compensation Basics

workers compensation basics for employers

According to the Hartford Insurance Company’s analysis of claims data, there is a fifty percent chance that a small business will experience a workplace injury claim in the next ten years. That is to say that workplace injuries can occur in any type of business, at any time. Just because your business is not an inherently dangerous one does not mean that your employees cannot and will not get hurt on the job. The Hartford study revealed that the most common injuries in small business are injuries to the arms, hands, and shoulders, and often include those working in an office or small retail setting.

Workplace accidents cost businesses money, and small businesses may be impacted even more than larger businesses because a loss of one worker may have a disproportionate impact on the business’s ability to operate effectively. So it is important to have a general understanding of workers’ compensation insurance, what it covers, and when it is required.

What is Covered

Generally, workers’ compensation insurance covers the injured employee’s medical costs, lost wages, compensation for disability or death as the result of the injury, and the costs associated with any vocational rehabilitation. These payments are provided to the injured employee no matter who is at fault for causing the injury—even if it is solely the employee’s fault.

Because the general costs of workplace injuries are covered by workers’ compensation insurance, an employee’s right to sue for workplace injuries is limited in most states. If a worker is entitled to file suit for a workplace injury, the workers’ compensation insurance policy will generally cover the legal costs incurred by the employer in defending itself in that suit. However, this part of the insurance policy will carry a liability limit – meaning that the insurance policy may cover some, but not all, of the costs associated with a workers’ compensation claim if those costs exceed the liability limit.


Each state has its own rules about what kinds of illnesses and injuries are covered by workers’ compensation insurance and what the limits are on the amount of workers’ compensation benefits an employee may receive. State rules also vary as to when an employer is required to obtain workers’ compensation insurance, based on a number of factors, including the number of employees in the business and the type of business. 
In most states, workers’ compensation insurance is not required until there are employees who are not owners of the business. But even in states where workers’ compensation is not required, the employer is financially responsible for injured workers. Workers’ compensation insurance may be offered by your state, by private insurance carriers, or both. The cost of a workers’ compensation insurance policy will depend on the number of employees in your business, as well as the type of business you operate, your location, and other factors. 

Notably, failure to obtain workers’ compensation insurance in states where it is required can result in costly penalties in addition to out-of-pocket expenses for workers’ compensation claims. In some states, failure to obtain workers’ compensation insurance or keep accurate employee records of workplace illness or injury is a criminal offense, carrying criminal penalties.

Related Article - Injured at Work: Suing Outside of Workers' Compensation

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Posted - 11/16/2016