How does workers compensation work?

Workers compensation, otherwise know as workers’ comp, is an insurance system that exists in all states to protect workers who become hurt or ill in the course of employment. In doing this, the employee agrees to relinquish their right to sue, unless there is extreme negligence on the part of the employer. This system allows injured or sick employees to receive medical care, payment of a certain percentage of a worker’s wages, compensation for economic loss (past and future), and benefits payable to the dependents of workers killed during employment.

Workers compensation acts like several other insurance service, including health insurance, life insurance and disability insurance.

As soon as a workplace injury occurs, it is the responsibility of the employee to immediately provide notification to their employer. This allows the injury report to be filed with the state workers compensation board. Failing to do this can provide justification for a workers compensation carrier to deny benefits, claiming that the injury must not have been as serious as it might be. Reports must include how, when and where the accident occurred with witnesses if available.

Typically, workers will receive about two-thirds (2/3) of their weekly wages. These payouts to the individual are tax-free under the workers compensation act, unless a part of the payout is sourced from your social security benefits or equivalent railroad retirement benefits. Workers may also receive a workmans’ comp lump sum settlement, based on the degree of impairment suffered (such as the loss of a finger).

However, there are 2 longer-term issues concerning compensation.

If the worker is permanently and total incapacitated, a court will determine if the individual qualifies for total and permanent (long-term) disability benefits, paid for his lifetime. Or, the individual might qualify for long-term disability benefits under social security. They may also receive a lump sum settlement, which typically takes into account a worker’s earnings and projected life expectancy.

If the individual is permanently disable, such that they can only return to work in a lesser capacity for lower pay, workers comp would pay the difference between what a worker formerly earned and then later earned, based on set time and maximum payout limits based on jurisdictions.

In all case it’s best to consult an attorney who can guide you through the process.