Workers’ Compensation insurance is purchased by employers to cover the costs of medical care and lost wages that result from a job-related injury, illness, or fatality. The policy also serves to protect employers from lawsuits relative to such incidents.

While statutes vary from state to state, the short answer is “yes” for most businesses with employees – although exceptions do apply. Each state’s laws and court decisions control the Workers’ Compensation system and determine factors such as benefits entitlement, impairment evaluations, delivery of medical care, claims handling, cost control, and penalties for non-compliance. For helpful resources, see our additional information FAQ.

The cost of Workers’ Compensation insurance is largely regulated by each state and based on various factors. Simply put, premiums charged by an insurance company are based in part on industry classification codes and payroll. The more hazardous the occupation, the higher the premium will be due to the greater risk of injury or illness.

Businesses can have some influence over the premium they pay for Workers’ Compensation insurance. For instance, controlling the frequency and severity of claims in a work environment can help a business maintain a favorable Workers’ Compensation loss history (which is generally a factor in determining the premium charged). Implementing measures such as a formal safety committee, return-to-work plan, drug-free workplace, and managed care program can all help to control claims and mitigate associated expenses.

While it’s best to consult with a licensed insurance professional for an explanation about specific Workers’ Compensation laws, other helpful resources include: any state insurance department’s Workers’ Compensation division, the Insurance Information Institute, or the U.S. Department of Labor/Workers’ Compensation Division.