What Is Workers' Compensation?

If the worst happens and you're injured at work, it can be reassuring to know if you're entitled to benefits or compensation. Workers' compensation coverage can provide financial protection if you experience a work-related illness or injury.

Workers' compensation — often known as “workers' comp” — is a mandatory type of employer insurance that covers employees who can no longer work because of work-related illness or injury. All states require employers to maintain workers' compensation coverage, with the exception of Texas. Workers' compensation provides certain benefits, which vary widely from state to state.

If you're a federal employee or work in certain industries, you may be covered by a federal workers' compensation scheme. Coal miners, for example, are covered by the Black Lung Program overseen by the U.S. Department of Labor.

How Does It Work?

Workers' compensation insurance is designed to protect both employees and employers. Employers pay premiums to a private insurance company to maintain coverage. It provides injured or sick employees access to benefits while allowing employers to avoid the potentially higher costs of a lawsuit. You don't have to agree to receive workers' compensation in the event of an accident or injury; doing so means waiving your right to sue your employer.

If you qualify for workers' compensation, you may be entitled to reimbursement of any medical costs directly related to your illness or injury. Some policies provide employees with the equivalent of sick pay if they're temporarily unable to work, and they may offer a payout to dependents if an employee dies as the result of a workplace accident or incident.

Many workers' compensation programs pay eligible employees a portion of their salary if a work-related illness or injury means they can't work. However, this is unlikely to equal your full regular salary.

Some states waive the requirement for workers' compensation insurance for particular employers or exclude certain employees, and the minimum requirements may vary across industries. For example, some states don't require small businesses to maintain workers' compensation coverage.

You can find out what's required in your state on the National Federation of Independent Businesses website.