Workplace injuries are a reality for your business because workers can be injured doing a number of tasks. The U.S. Bureau of Labor Statistics reports there were 2.8 million nonfatal workplace injuries in 2019, including traumatic injuries from workplace machinery and repetitive-use injuries, such as carpal tunnel syndrome.
Most states require that you carry workers’ compensation insurance, which is one type of business insurance. Workers’ comp covers the financial losses you would incur following an injury on the job. When there’s more severe or permanent harm, a settlement will often result with either a lump sum or structured payment plan to the employee. Here’s a look at how workers’ comp settlements work and what you need to know.
How does a workers’ compensation settlement work?
When an employer has workers’ compensation insurance, they notify the insurance carrier when an injury occurs. The carrier then coordinates payments for medical expenses, lost wages and rehabilitation expenses.
The injured employee may choose not to accept the workers’ compensation benefits, instead opting to hire an attorney to get a larger settlement.
When an insurance carrier pays benefits directly, without a settlement, the injured worker often receives money to cover only the injury’s hard costs. For example, the insurance carrier will pay existing medical bills, but not necessarily future medical bills.
A settlement will factor in the injured employee’s future health care fees, and ensure they can sustain their household costs. The settlement will also factor in attorney costs, which drive up the settlement value and provide the worker with proper representation. It’s common for the attorney to work on a contingency basis and be paid after a successful settlement.
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What expenses do workers’ comp settlements cover?
Workers’ comp is designed to cover a wide range of costs incurred when your employee gets hurt. When it comes to a settlement, workers’ comp will pay for the following types of expenses:
- Attorney fees
- Disability payments
- Medical bills
- Ambulance rides
- Future medical treatments
- Lost wages and future lost wage costs
FYI: Most settlements allow the injured worker to choose either a lump-sum amount or a structured payment.
The workers’ compensation settlement process
Workers’ compensation is legislated and governed at the state level. This is why some states have very stringent workers’ compensation rules, while others – like Texas – don’t require you to maintain a workers’ compensation policy. Consequently, the workers’ compensation claim settlement process will likely differ depending on your state.
While most of the settlement process steps will be similar, you’ll need to follow the deadlines when filing a workers’ compensation claim and negotiating a settlement.
These are the basic steps an employee will follow to receive a workers’ compensation settlement:
- Notify your company of an injury.
- Receive medical attention.
- File a workers’ compensation claim.
- Receive an approved or denied claim.
- Hire an attorney if your insurance company is unwilling to offer a settlement.
- Calculate the payout.
- Negotiate with your insurance carrier.
- Take the case to court if the parties cannot reach an agreement.
- Receive a judgment.
- Accept payout as a lump sum or structured settlement.
Tip: Be sure to include a thorough workers’ compensation guide in your employee handbook.
Calculating a workers’ comp payout
A major part of the settlement process is calculating the payout. This isn’t just an arbitrary value: There are several factors an attorney will consider when calculating a workers’ comp payout. It starts with the existing medical expenses and lost wages. These two factors are easy to determine because your employee’s bills and income are readily available. The calculation gets more complicated when factoring impending medical expenses and lost wages.
Calculating upcoming medical expenses and lost wages often relies on talking to doctors to determine what types of procedures will be necessary to properly heal the injury or illness. Your employee might need surgery for a worsening condition or, if ill, may require additional levels of treatment.
On top of wages and medical costs – both existing and future – the attorney will use a defined rate for a specific loss. A specific loss includes the loss of a limb, loss of hearing or sight, or paralysis. Every state has its own schedule of loss of use (SLU) to help determine the rate for a specific loss.
For example, Michigan’s schedule notes that the loss of a thumb would equal 65 weeks of lost wages, while the loss of a leg would be 215 weeks.
Tip: Want to know more about how specific insurance providers handle workers’ compensation claims? Check out our full review of The Hartford.
How are workers’ comp settlements reached?
Not every workers’ compensation case will go to a settlement negotiation. If the injured worker goes back to full-time work, and has no other outstanding medical bills or appointments, the claim can be closed and deemed fulfilled.
However, if the claim includes prolonged or permanent injuries, the insurance company will likely offer a settlement based on the workers’ compensation payout calculation. The injured worker may or may not have an attorney at this time.
If the offered amount is acceptable, the parties draw up the paperwork to provide the settlement while closing the claim. When the claim is closed, your employee usually waives their rights to seek further damages, so they must be sure that the settlement appropriately covers all their future needs.
If the proposed settlement doesn’t appropriately cover future income and medical expense needs, the injured worker and their attorney will bring the matter to a judge for an official hearing.
FYI: The best way to avoid workers’ compensation claims is to have strong workplace safety measures in place.
Workers’ comp claim hearings
In many states, if you have workers’ compensation insurance and the employee accepts benefits or a settlement, they can no longer sue you for their injuries. However, if your company is deemed at fault and the proposed settlement is considered insufficient, the injured party will hire a personal injury attorney, and a judge will see the case in a workers’ comp hearing.
In the workers’ comp hearing, the judge will review details of the case, such as the circumstances behind the injury or illness. The judge will look at job history and listen to expert testimony about the worker’s injuries. The injured employee will seek as much money as possible in the settlement or judgment, and will likely include pain and suffering calculations.
After reviewing all the evidence, the judge will make a determination for all, some or none of what the plaintiff solicited. In most cases, the judgment is for a portion of what the plaintiff requested. The insurance carrier will pay the award as a lump sum or structured settlement, where it makes regular payments over time to the winning party.
Your role in the workers’ comp settlement process
Because most states require you to have workers’ compensation insurance (unless you qualify for a workers’ comp exemption), you won’t pay for the costs associated with an employee’s injury or illness. However, if you don’t have this insurance, you will be 100% liable for any injuries on the job.
Even if you have this insurance, you will still need to participate in the workers’ compensation claim process. Your HR team must first notify the insurance company of the injury to file a claim. In some states, you must also notify the state workers’ compensation board.
During the claim process, you will work with the insurance carrier to provide any incident reports for the claim, a job description with detailed duties and proof of income to determine the average weekly wage the employee receives. If a case goes to court, you are expected to participate in the process and provide details about the employee’s job and employment history.
Tip: If you need to choose a workers’ compensation policy, check out our recommendations of the best business insurance providers.
Workers’ compensation insurance
Since most states require you to have workers’ compensation insurance, it isn’t a matter of whether you should get it, but instead a matter of getting the right policy. Owning this policy will protect you from the financial ramifications of workplace injury and illness claims.
Coverage goes well beyond just paying for medical expenses and lost wages. Insurance will also provide for investigation and legal defense throughout a claim. Legal fees can add up quickly, and if you have a robust workers’ compensation policy, you won’t have to worry about this added cost.