A Complete Overview of Workers’ Compensation Insurance

Summary: Many small business owners have questions about workers’ compensation insurance, including what it covers, why they need it and how much it costs. This article offers a comprehensive overview of workers’ comp for small businesses.

Everything You Need to Know about Workers’ Compensation

Workers' compensation insurance provides protection for people who are injured during the course and scope of their employment. It can be due to an accident, like falling from a ladder or sustaining a cut, scrape or burn. It can also result from a repetitive injury from performing the same arm motion repeatedly. The goal of having workers’ comp insurance is to get the employee back to work and protect against the loss of income.

What is Workers’ Compensation?

Workers' compensation insurance offers five basic benefits:

1. Medical care for the injured worker.
2. Temporary disability benefits to make up for lost wages while the injured employee is recovering.
3. Permanent disability benefits (either partial or total) if an employee suffers a permanent impairment.
4. Supplemental job displacement benefits, which pay for skill enhancement or retraining if the injured worker cannot return to the job they had before the injury.
5. Death benefits paid to a spouse, children or dependents if the worker dies due to job-related injury or illness.

Workers' compensation was previously known as "workman's comp."

A Brief History of Workers’ Comp

Although most people think that workers’ compensation originated from the Industrial Revolution, its history can actually be traced back to ancient Sumerian law. Drafted around 2050 B.C., early workers’ comp policies outlined requirements for compensating injuries to specific body parts. For example, the payout for a thumb injury was worth half of what you’d get for a finger.

Worker’s Accident Insurance became industrialized Europe’s first mandatory workers’ compensation policy. Austria, Norway, Finland and the United Kingdom would implement their own workers’ compensation laws before the turn of the century. Across the ocean, it would take the United States longer to hop on the bandwagon.

Is Workers’ Compensation Insurance Mandated?

Some states (WA, ND, OH, WY) have monopolistic state-run workers’ comp programs, in which coverage is provided by the government rather than a private insurance company. Additionally, some states have monopolistic state-funded workers’ comp coverage – meaning that the state only allows a business to purchase their coverage from a state-funded program. To find out more about the regulations for your specific area, visit the U.S. Department of Labor's State Workers' Compensation Officials website and click through to your state's site.

How does Workers’ Compensation Work?

The main purpose of workers' compensation is to address legitimate workplace accidents and carelessness. This includes incidents that occur off the employer's premises but in the service of the job, such as injuries sustained while traveling for work. It can cover both short- and long-term issues, such as a broken leg sustained in a fall or acquired carpal tunnel syndrome. Thus, workers' compensation protects an injured employee in a broad range of situations. After an injury or illness occurs, the employee should seek medical assistance, and the employer should start the claims process.

Why is Workers’ Compensation Important for Small Businesses?

Workers’ compensation insurance is important for small businesses because it helps them avoid the actual cost of medical expenses and lost wages. Additionally, small businesses need workers’ comp because:

• As mentioned previously, in most states, workers’ compensation is a requirement. Be sure to check what is required by law regulations for your specific area by visiting the U.S. Department of Labor's State Workers' Compensation Officials webpage and clicking through to your state's site.
• It protects a business by helping them avoid the actual cost of medical care and lost wages. A major claim can have a devastating financial effect on your business operations. Having access to effective loss control resources can help avoid accidents. With sound claims management, your injured employees can return to work sooner - thereby improving productivity and saving your business money.
• It helps protect your most valuable asset – your workforce. If your injured workers get the help they need, they can get back to full strength and help your business continue to succeed.

How to Get Workers’ Compensation Coverage

Now that you understand what workers’ comp insurance is and how it works, let’s talk about how small businesses can get it. Here are tips to get started:

• Research the workers’ comp laws in your state – this is important if your business operates in a state-funded workers’ comp area or if you are in a state with a monopolistic state fund.
• Gather pertinent financial records for your small business, including payroll figures and estimates for the next calendar year.
• Keep a copy of your mission statement or a description of your business handy – this may be necessary when evaluating your small business's coverage options.
• Contact an insurance broker or agent. An experienced agent (such as an AmTrust Financial-appointed one) can walk you through the buying process and help you understand the various laws, class codes and underwriting involved with workers’ compensation insurance.
• Some agents specialize in working with specific fields/trades and may have additional knowledge and experience servicing your business type.
• Ask about risk management services and support.
• Discuss payment of policy, such as direct debit and premium financing.

Understanding Workers’ Compensation

Insurance is not one-size-fits-all. There are many decisions a small business owner needs to make to be successful, and choosing the right business insurance is one such decision. Small business owners need to decide the best types of commercial insurance required to protect their property, employees and products.

Workers’ Compensation Vs. General Liability

Workers’ compensation and general liability are two distinctly different but necessary small business insurance coverages. Both types of insurance protect a business if there are injuries in the workplace, but their emphasis is different. Workers’ comp insurance protects small businesses and their employees by providing benefits for most types of employees who are injured on the job. On the other hand, general liability insurance can provide coverage for injury or property damage to non-employees from incidents that occur on your premises from your products or operations, certain legal defense costs if your company is sued, and reputational damage due to libel, slander or copyright infringement.

Another difference is that workers’ compensation is limited to your employees, whereas general liability insurance will expand to those affected by your business. Also, workers’ compensation coverage can transfer disbursements. This means that workers’ compensation coverage can function similarly to other types of insurance, such as health, disability, businessowners policy, life or general liability insurance - but it doesn’t replace these policies.

Myths about Workers’ Compensation Insurance

Small business owners may convince themselves that they don’t need the added expense of workers’ comp coverage. They might think that an injury could never happen at their company, and even if it did, they would pay out of pocket – which could be far more financially damaging than they realized. Let’s see if we can dispel these workers’ comp myths once and for all.



Reality: If a company employs more than one person, having a workers’ compensation insurance policy is the best way to go. In fact, in most states, if a small business has more than one employee, workers’ compensation insurance is mandatory. Without a workers' compensation policy in force, damages for injuries incurred at work can soar past thousands of dollars and into the millions. Without adequate coverage, employers leave themselves open to punitive damages, pain and suffering suits, and the potential for astronomical medical bills. Even in the most careful and safest work environments, accidents resulting in injuries can – and do, happen. It’s always better to be covered and prepared for any accident, however unlikely it may seem.

Why Classifying Employees Matters for Workers’ Compensation

Both large and small businesses across the country utilize independent contractors or freelancers. As these workers fuel today’s gig economy, understanding the difference between a company employee and an independent contractor is important for an organization’s tax purposes. Insurance Journal recently shared that government agencies are auditing companies to see if they are classifying their workers as independent contractors instead of workers to avoid paying workers’ comp, unemployment taxes, social security and Medicare.

There are consequences of misclassifying an employee as an independent contractor. In many cases, employers misclassify their employees as independent contractors, so they don’t have to pay taxes or provide benefits. It isn’t just large corporations having this issue, either, as small businesses who do not know the differences could do this as well. If there are red flags about a worker’s paperwork, the IRS could investigate a company further.

What Does Workers’ Compensation Cover?

Course and Scope Rule

Generally, the workers’ compensation statue is by definition, any injury, illness or disease that occurs out of or in the course of employment that was caused, contributed to, or aggravated by a specific incident. This includes any kind of repetitive occupational claim in nature that occurs while an employee performs their job over time, such as a rotator cuff tear from repeatedly reaching overhead or back injuries from heavy lifting.

Not all work injury claims are covered. These situations include:

• A worker intentionally causes his or her own injuries or illnesses
• The injury or illness occurs while the worker is doing something illegal
• The employee was not in the course and scope of his/her job
• The worker's behavior was in clear violation of company policy or protocol
• The employee was under the influence of drugs or alcohol
• The injury occurs after an individual is laid off or terminated

Does Workers’ Comp Cover Volunteers?

The short answer – it depends. Several factors, including the organization’s location and how long it retains its volunteers, can be determining factors. Laws vary by state, however, and a number of them do not allow workers’ compensation insurance to include volunteers under its coverage.

The nonprofit sector, in particular, is most impacted by the answer to this question. The insurance needs of nonprofits are different from a traditional for-profit business. Whether formed for educational, research, religious or charitable activities, organizations like these often rely on volunteers to help reach their goals.

If your organization is located in a state that does extend your workers’ compensation policy to cover volunteer workers, be prepared to offer up details to your insurance carrier’s underwriters about the number of hours worked, the type of work performed and specifics such as the age range of your volunteers. Keep in mind that adding volunteers under your policy could increase your insurance premiums.

Workers’ Compensation Costs

How Much Does Workers’ Compensation Cost?

There are a number of business characteristics that influence small business insurance costs, including the cost of workers’ compensation coverage.

The Experience Modifier (EMR) and Workers’ Compensation Costs

Businesses who have safe workplaces could see an experience modifier, the connection between their workplace injury loss and workers’ comp costs, that is better than average. Insurance companies use experience modifiers to help determine workers’ compensation premium costs, and companies with lower risk will generally have a lower premium.

Insurance companies translate the experience modifier into a number or an experience modification rate (EMR). This number is based on your company’s historical cost of injuries and future risk chances. A company’s EMR is then compared to the average losses of other employers in your state in the same industry. The final rate is based on a presumption that historical losses predict future losses. An EMR of 1.0 is the industry average. If your business has a lower EMR, then your workers’ compensation will be lower. If the EMR is above 1.0, then premium rates will be higher.

How to Lower Workers’ Compensation Costs

Businesses with safe workplaces could see an experience modifier that is better than average and pay less for their workers' comp premiums – while also protecting their employees. Recommendations include:

• Assessing workplace hazards: Create a process to identify potential risks in your office, shop or work site. Have your insurer, local chapter of the National Safety Council, OSHA, etc., visit your location to point out the hazards. Employees should also be encouraged to recognize and report any dangers or near-miss accidents.
• Creating a safety program: Implement a written workplace safety program with the full support of management and top leaders down to the employees.
• Communicating with staff: Explain the workplace safety program clearly to employees and involve them in the implementation and day-to-day processes. Hold everyone in the workplace accountable for his or her actions.
• Investigating every workplace incident: Every type of workplace incident needs to be investigated no matter the size or injury type. The investigations will give insights into which safety processes are not working or need to be updated to prevent future accidents.

Workers’ Compensation Claims

How to File a Workers’ Compensation Claim

Let’s take a closer look at what happens when a small business owner files a workers’ comp claim.

Step 1: The employee reports an injury to the employer

A work-related injury occurs to an employee, and he or she reports the injury to the employer (this needs to be done within a certain period of time, depending upon the state’s laws – usually 30-90 days). The employee should seek medical attention right away for a serious or life-threatening injury. If it is a non-emergency, the employee should visit a medical provider designated by the employer.

Step 2: The employer files the claim with their insurance carrier

Upon receipt of the work injury, a supervisor (or HR representative) should provide the necessary paperwork to the employee and report the injury to the company’s workers’ comp insurance provider.

Step 3: The insurer reviews the claim

The workers’ compensation insurance carrier will determine whether a claim is approved or denied based on the circumstances around the injury. If approved, the employee can accept the payment offered to cover items like medical bills and lost wages or negotiate for a lump-sum settlement.

Step 4: Continue receiving medical treatment and monitor the status of your claim

The employee continues receiving treatment and may follow up on the status of their claim periodically.

Step 5: The employee returns to work

Once the injured employee is healthy enough, he or she will return to work (either full-time or in a limited role) unless the injury leaves them totally disabled.

Mistakes to Avoid When filing a Workers’ Compensation Claim

When an employee suffers an injury on the job, certain procedures must be followed, and responsibilities need to be properly fulfilled to ensure a smooth process for both parties. While each state has its own system and laws, all states require filings from both the employee and the employer. Once those filings have been submitted, the insurance carrier files with the state.

Here are a few of the common mistakes employers should avoid when it comes to filing a workers’ comp claim:

Workers’ Comp Claim Mistake #1: Neglecting to Put the Injured Employee First

First and foremost, the employer needs to take care of their employee. Remember: employees are an organization’s most valuable asset, and employers need to treat them as such.

Workers’ Comp Claim Mistake #2: Not Getting a Full Report of the Accident or Injury

Get a full account of what happened, including talking to witnesses and reviewing video footage. Not only will this help employers understand exactly what happened, but they can also learn what safety procedures may need improvement to prevent future injuries for other employees.

Workers’ Comp Claim Mistake #3: Procrastinating the Filing Process

Claims forms should be provided to injured employees, typically within 24 hours of the employee giving notice of the incident. The employer is responsible for timely reporting.

Workers’ Comp Claim Mistake #4: Ignoring State-Specific Submission Requirements

Each state has specific requirements and regulations when it comes to filing a workers’ compensation claim, and employers should understand exactly what is needed before starting the claims process.

Workers’ Comp Claim Mistake #5: Not Implementing a Return to Work Program

A return to work (RTW) or modified duty program helps alleviate the stress on both the employer and the injured employee. These programs offer injured employees a way to ease back into the workplace even if they cannot perform their pre-injury job duties. A RTW program helps minimize their workers’ compensation costs, reduce turnover and maintain productivity in the workplace.

Workers’ Compensation Claim Example Scenario

The following serves as a great workers’ compensation insurance claim example for agents to share with their clients of situations they may encounter and help identify an exposure or a gap in coverage they might have.

Slip and Fall Incident

The claimant, a 34-year-old female, was entering a building where she was employed when she slipped and fell on icy stairs. This individual sustained a concussion and a torn medial meniscus of the right knee. The building owner was not responsible for the claimant’s injury, but rather a third-party vendor hired by the landlord.

In this case, the workers’ compensation policy could respond as she was an employee in the course and scope of her employment. The workers’ compensation laws of most jurisdictions generally have an “egress and ingress” rule, which protects employees on the way into or out of their place of employment. This claimant can collect workers’ compensation benefits, as workers’ compensation is typically primary in all jurisdictions (first-party benefits). The law also generally includes an “exclusive remedy doctrine,” which holds the employee’s employer harmless from any civil liability. However, when the injury results from the fault of another party, the claimant can have the right to sue that third party.

The responsible party in this scenario would likely be the maintenance company. If the claimant successfully obtains a judgment or settlement against the maintenance company, the workers’ compensation company could then have a statutory lien against that settlement to offset any amounts paid pursuant to the workers’ compensation policy. In other words, a portion of the amount paid under the workers’ compensation claim may be deducted from the judgment or liability settlement. This can be put into place to prevent the claimant from “double-dipping.”

Workers’ Compensation Fraud

How to Spot Workers’ Compensation Fraud

Here are six signs of a potentially fraudulent workers’ compensation claim:



Individually, these signs do not conclusively mean a workers’ comp injury is false, but when more than three of them are present, it might be time to take a closer look at the situation and the employee’s claim. Workers’ compensation claims are expensive both at the time of injury and over the long run.

How to Handle Workers’ Compensation Claims

For employers, it’s not unusual to be skeptical of a false workers’ compensation claim and see some as a neon “STOP” sign every time an employee is injured on the job. But consider these facts before thinking the worst of your employees:

• Experts estimate that only 1-2% of workers’ compensation claims are fraudulent. Because of this, it’s highly unlikely that your employee is faking their injury. Consider the situational factors that might have contributed to the circumstances of the suspicious injury and claim.
• New employees are three times more likely to be injured on the job than seasoned and experienced team members. At the same time, it’s important to consider the employee’s age, experience, and job training while considering whether a workers’ compensation claim is legitimate.
• The costs associated with training new employees on safety and compliance are both expensive and time-consuming – the recruiting, hiring, and training process can cost your business in a big way.

How to Report Workers’ Comp Fraud



If an employee has made a fraudulent workers’ compensation claim, it’s important to understand and follow the proper procedure to ensure that your business is protected. If you feel one of your employees is taking advantage of your workers’ compensation coverage after investigating the incident, report your findings to your claims adjuster. Armed with the facts and specifics, this professional will be able to take care of everything quickly and with minimal disruption to your business.

The Dangers of Underreporting Payroll through Premium Fraud

Premium fraud refers to a business owner's deliberate attempt to lower their insurance premium by misclassifying employees, such as reporting an employee who works in the field as an office worker – or underreporting the number of employees on the payroll. Premium fraud also occurs when an employer misclassifies a worker who is an employee as an independent contractor. Misrepresenting an employer's claims history is also considered premium fraud.

Employers looking to save a few dollars in workers’ compensation premiums by underreporting their payroll or misclassifying employees are not only hurting other insureds, but they’re putting their own company at major risk.

Workers’ Compensation from AmTrust

6 Things to Know about AmTrust’s Workers’ Comp Insurance

Here are six facts when it comes to workers’ compensation coverage from AmTrust:

1. We work with multiple rating companies
2. We have an extensive coverage appetite
3. We are leaders in loss control
4. We provide unparalleled claims management
5. Our technology ensures a quick turnaround
6. We give customers a say in how they pay

Comprehensive, Customized Workers’ Compensation Coverage from AmTrust

AmTrust Financial is a leader in Workers’ Compensation Insurance for small to mid-sized businesses. We love working closely with our agents and small business owners to design the right coverages for their specific needs.

For more information about our small business insurance solutions or becoming an appointed agent, please contact us today.

This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.