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Workers Compensation Shop.com » Workers Comp information » What is Workers Compensation

What is Workers Compensation

Workers compensation is a form of insurance required for employers to compensate injured workers for lost wages and medical costs.

Questions? Call 888.611.7467 for a Workers Compensation Shop Specialist

History of Workers Compensation

Prior to federal and state workers compensation legislation in the United States, employees who were injured on the job had no formal system in place to compensate them for injuries sustained while working for an employer.  The only recourse for the injured employee was to sue the employer via civil or tort law.  Furthermore, the employee would have the burden of proving employer malice or negligence.  Even though the employers potential liability was limitless, most courts in the U.S. typically ruled in favor of the employer.  This left employees to cover their own losses including lost wages, medical costs, and future earnings.

Originally the federal government assumed that workers compensation laws should be left to individual states to enact.  But in 1908 President Taft signed the first legislation requiring coverage for employees working in multi-state commerce.  During the next 40 years each state enacted state-specific programs and work compensation laws.  Wisconsin was the first state to establish a formal program and Mississippi was the last state.

Statutory Workers Compensation Coverage

The onset of legally required workers compensation coverage brought advantages to both employers and employees.  The basis of the system is built around the Prussian concept of "no fault" insurance.  This basically means that on the job injuries are an accepted fact of business and the workers compensation system is designed to manage the financial consequences of accidents in the most efficient and judicious manner possible.  The concept of no-fault eventually expanded into auto insurance as a means of limiting litigation for each accident.

The primary benefit to employers participating in a workers compensation program is that they have tort exemption for injuries that are covered under a workers compensation policy.  The insurance policy will cover the cost of lost wages and medical benefits for employees injured on the job.

Employees benefit from an employer's workers compensation policy because claims are not based on proving negligence or employer liability.  This means that employees may receive compensation for injuries that occur through their own carelessness or occupational exposure without any burden of bringing a suit against their employer.  Under the form workers compensation system, employees receive compensation more quickly and more often than employees without access to workers comp coverage.

Statutory Workers Compensation by State

Since workers compensation systems are administered by each individual state, there may be important differences in how each state interprets laws and statutes regarding coverage and benefits.  The federal government also administers its own system for federal employees and utilizes its own. 

Companies that do not carry workers compensation insurance(except: Texas) may face fines and penalties for not maintaining coverage.  Additionally, they may be responsible for paying for lost wages and medical expenses for injured employees.

To learn more about specific state workers compensation programs and regulations explore our state workers compensation pages.

Who Pays for Workers Compensation?

State regulations determine the workers compensation requirements for employers in each state, but employers always pay for the coverage and either purchase it through private insurance companies or state funds.  However, most states have additional injury funds established to pay for injuries of uninsured employees under certain circumstances.

Workers Compensation Insurance is the Best Alternative

Although workers compensation coverage is not a perfect system, and is extremely convoluted by individual state laws and statutes by each state, it is still an American success story and has done far more good than harm.  It is a better system than we had prior to Workers Compensation Legislation.  Employers now receive instant relief from employee law suits and employees get a fast and equitable no-fault program for relief from on the job injuries.

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