Workplace injuries are a reality for your business because workers can be injured while performing numerous tasks. The United States Bureau of Labor Statistics reported 2.8 million nonfatal workplace injuries in 2022, including traumatic injuries from workplace machinery and repetitive-use injuries, such as carpal tunnel syndrome.
Most states require that businesses carry workers’ compensation insurance, a 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 often will result in 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.
When an employer has workers’ compensation insurance, it notifies its insurer when an employee suffers an injury. Typically, the insurer coordinates payments for medical expenses, lost wages and rehabilitation costs.
In the workers’ compensation claims process, the insurer may pay workers’ comp benefits directly or via a settlement. When an insurer pays benefits directly ― without a settlement ― the injured worker often receives money to cover the injury’s hard costs. For example, the insurance will pay existing medical bills but won’t necessarily cover future medical bills.
However, the injured employee may choose not to accept the workers’ compensation benefits they’re offered. They may instead opt to hire an attorney to get a more significant workers’ comp settlement that considers their immediate and future financial and medical needs.
A workers’ comp settlement considers the following:
Attorney costs drive up the settlement value and provide the worker with proper representation. It’s standard for an attorney to work on a contingency basis and be paid after a successful settlement.
Most settlements allow injured workers to choose a lump sum or a structured payment. Employees with substantial medical bills will likely opt for a lump sum. Those who must pay for medical care over a longer term may prefer a structured payment.
Workers’ comp will pay for the following types of expenses in a settlement:
Workers’ compensation is legislated and governed at the state level. Some states have stringent workers’ compensation rules, while others ― like Texas ― don’t require you to maintain a workers’ compensation policy. Consequently, your workers’ compensation settlement process and deadlines will likely differ depending on your state.
In general, most settlement process steps will be similar for employees and employers and include the following.
These are the essential steps an employee will follow to receive a workers’ compensation settlement:
Employers should take the following steps during the workers’ compensation settlement process:
Calculating the payout is a significant part of the settlement process. An attorney and HR personnel will consider several factors when calculating a workers’ comp payout:
Say your company is deemed at fault in a worker’s injury and the proposed workers’ comp settlement is considered insufficient. In this case, the injured party may hire a personal injury attorney and take their case before a judge in a workers’ comp hearing.
In a workers’ comp hearing, the judge will review case details, such as the circumstances behind the injury or illness. The judge will examine the injured party’s job history and listen to expert testimony about their injuries. The injured employee will likely include pain and suffering calculations in their payout proposal.
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 the plaintiff’s request. The insurance carrier will pay the award as a lump sum or structured settlement, making regular payments to the winning party over time.
Workers’ comp payments are based on various factors, including how severe an injury was, how much the injury will impact the employee’s work and the employee’s weekly wages. Payouts generally cover a portion of lost wages and the medical expenses incurred by treating the injury. States have specific guidelines on compensation, so an injured employee might be awarded less for a specific injury in one state than in another.
If a dispute occurs between an injured worker and their employer or insurer on a workers’ compensation claim, the worker can take the case to court. Overseen by an administrative law judge, both sides present evidence and arguments on the nature of the injury, the extent of the medical treatment required and the compensation offered. The judge makes the final decision. In most cases, if an employee accepts the original settlement, they can’t take it to court later.
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 percent liable for any injuries on the job.
Even if you have this insurance, you must participate in the workers’ compensation claim process in the following ways:
Employers must have workers’ compensation insurance as a matter of law in most U.S. states. The insurance protects employers and employees from the costs and consequences associated with workplace injuries.
Coverage goes well beyond 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.
The price of workers’ compensation insurance averages 1.19 percent of payroll, so the cost is not particularly high, especially compared to other payroll costs. Depending on your state, the price of not having insurance can reach up to $100,000 in fines.
Mark Fairlie contributed to this article.