September 2, 2025 | Workers' compensation

Workers’ compensation insurance is required for most employers in most U.S. states. It exists so employees injured or made ill by their work have a statutorily guaranteed set of benefits — medical care, wage replacement, and in some cases vocational rehabilitation and survivor/funeral benefits.

In return, employees generally give up the right to sue their employer for negligence in most circumstances. For employers, that tradeoff is crucial: workers’ comp protects the business from financial devastation following an on-the-job injury and also provides a structured process for managing claims.

What a workers’ compensation policy actually does

On the surface a workers’ comp policy looks simple: you pay a premium and you get coverage. But in practice the policy performs multiple functions for both sides of the employment relationship.

• For employees: It guarantees immediate access to medical care for work-related injuries or illnesses, wage replacement while they’re out of work, and additional benefits such as vocational rehab, permanent disability payments, and funeral or survivor benefits in the worst-case scenarios.
• For employers: It shields the company from most lawsuits by injured workers, and it provides a risk-management framework for handling claims, returning employees to work, and controlling costs.

Most policies have two basic sections: one that outlines the statutory benefits provided to injured employees, and another that limits the employer’s common-law liability by defending the employer if a lawsuit is filed for circumstances outside the normal workers’ comp benefits. This is often described as the policy “standing between” the employer and financial ruin.

What workers’ compensation covers — benefits explained

Understanding the specific benefits helps you know what to expect when a claim occurs. The details vary by state, but these are the standard components:

• Medical expenses: Payment for reasonable and necessary medical treatment related to the injury or occupational illness. This includes doctor’s visits, surgeries, hospital stays, prescriptions, physical therapy, and sometimes travel expenses related to care.
• Temporary Total Disability (TTD): Wage replacement when an injured employee cannot perform any work for a period while they recover. States usually pay a percentage of the worker’s average weekly wage, subject to minimums and maximums set by statute.
• Temporary Partial Disability (TPD): Wage differential payments when an injured worker can perform some work but at reduced capacity, resulting in lower earnings than before the injury.
• Permanent Partial Disability (PPD) and Permanent Total Disability (PTD): Long-term benefits if an injury results in permanent impairment. Payments are often tied to scheduled losses (loss of limb, loss of function) or to a percentage of whole-person impairment.
• Vocational rehabilitation: If an injury prevents a worker from returning to their previous role, workers’ comp may cover retraining, job placement, and education costs to help them return to the workforce in a different capacity.
• Death benefits and funeral expenses: In fatal cases employers and insurers provide statutorily defined benefits to surviving dependents and cover funeral costs.

The core idea is that injured employees receive support without having to prove employer negligence in the normal course, and employers avoid unpredictable jury awards in exchange for predictable statutory obligations.

What workers’ compensation does NOT cover — common exclusions and fraud

Despite being broad, workers’ comp has clear limits. Not every injury or illness is covered. Below are the most common situations where claims are denied:

• Off-the-job injuries: Injuries that occur outside the scope of employment — for example, weekend sports, household accidents, or other non-work activities — are generally not covered. A frequent problem some employers see is an employee trying to “pass off” an off-the-job injury as work-related if they lack other insurance. That’s insurance fraud when intentional and can lead to serious consequences for the employee.
• Intentional self-harm: If an employee intentionally injures themselves, the claim is not covered.
• Injuries during criminal activity: Injuries that occur while committing a crime are typically excluded.
• Fighting and assaults: This area is nuanced. If an employee is assaulted on the job by a third party while performing their job duties, it is often covered. If an employee assaults a coworker and is injured in the process, many states will deny the claim. Courts and administrative boards examine the facts closely.
• Alcohol or drug influence: Injuries while the employee was under the influence of alcohol or controlled substances are commonly excluded if impairment is proven.

State laws vary and specific cases can be fact-sensitive. Insurance carriers and claims adjusters will investigate the circumstances to determine compensability, and employers should cooperate with investigations while protecting employee privacy and rights.

Who pays for workers’ comp?

The employer pays the workers’ compensation premium — period. Unlike health insurance, the employer is responsible for the full premium and cannot lawfully deduct the premium from employee paychecks in most jurisdictions. That premium is calculated based on:

• Payroll size
• Job classification codes (reflecting exposure to risk)
• Experience modification (your company’s loss history compared to industry peers)
• State-specific rate levels and statutory factors

Because payroll is central to premium calculation, accurate payroll reporting and proper worker classification are essential to avoid overpaying or triggering audits and adjustments later.

What happens when a claim occurs?

Here’s a typical sequence and actions employers should take:

1. Immediate response: Ensure the injured worker receives necessary medical attention. Safety first — secure the scene and prevent further harm.
2. Report promptly: Report the injury to your insurer or claims administrator as soon as possible. Timely reporting is often a condition of the policy and improves the insurer’s ability to manage the claim.
3. Investigate: Gather facts — witness statements, photos, equipment involved, and any other relevant information. Be thorough but objective.
4. Cooperate with the adjuster: Provide payroll records, job descriptions, prior medical records if relevant, and return-to-work options. Good communication speeds resolution and can reduce costs.
5. Return-to-work planning: Developing modified or light-duty roles allows injured employees to come back sooner, reducing indemnity costs and protecting your experience mod.
6. Fraud detection: If circumstances suggest fraud (e.g., an alleged on-the-job injury that occurred at home), report the facts to your insurer. Insurance carriers have investigators who can uncover inconsistencies. False claims can lead to denial and legal consequences.

Companies that treat claims as a partnership with their insurer — not as an adversarial process — tend to perform best. A cooperative approach with clear expectations reduces friction and helps both sides resolve claims fairly and quickly.

Wrapping things up

Does workers’ comp cover contractors or freelancers?

Generally, independent contractors are not covered under your workers’ comp unless state law or contractual arrangements make them statutory employees. Misclassification can expose employers to audits and back premiums. Use written agreements and review labor law tests in your state to determine contractor status.

Workers’ compensation is the simplest form of business insurance in concept — you buy a policy and it covers work-related injuries — but getting it right in practice takes attention. The key themes to remember are:

• Workers’ comp protects both employees and employers — medical care and wage replacement for workers, and protection from most lawsuits for employers.
• Not every injury is covered — off-duty injuries, intentional acts, injuries during criminal activity, and impairment-related incidents are common exclusions.
• The employer pays the premium in full; payroll, job classifications, and your claims history drive cost.

If you have any questions about Workers’ Comp insurance, contact us at 402-933-3345.  We’ll be happy to answer any questions you may have.

What Does Workers’ Compensation Insurance Cover?