Workers Compensation

Workers' compensation is the nation's oldest social insurance program. It is meant to provide fixed monetary awards to employees who are injured or disabled on the job. Workers compensation became law in most states to provide a no-fault system, meaning that injured employees do not have to prove the injury was someone else's fault in order to receive workers' compensation benefits for an on-the-job injury.

The workers' compensation system is premised on a trade-off between employees and employers -- employees are supposed to promptly receive the limited statutory workers' compensation benefits for on-the-job injuries, and in return, the limited workers' compensation benefits are the exclusive remedy for injured employees against their employer, even when the employer negligently caused the injury.

This no-fault structure was designed to -- and in fact did -- eliminate litigation over whether employers were negligent in causing workers' injuries. Litigation is now over other issues, such as whether the injury was sustained on-the-job or how much in benefits an injured worker is entitled to receive.

Workers' compensation benefits are administered primarily by private parties -- insurance companies authorized to transact workers' compensation and those employers secure enough to be permitted to self-insure their workers' compensation liability.

When an employer becomes aware of an on-the-job injury, the employer is expected to begin the process of providing the injured worker the benefits to which he or she is entitled under the law. The benefits are paid by either the employer (if the employer is authorized to self-insure) or the employer's insurer.

The state's oversee the provision of workers' compensation benefits, provide information and assistance to employees, employers, and others involved in the system, and to resolve disputes that arise in the process. The benefit financing system is the process by which employers finance their liability for workers' compensation benefits. Employers may finance their liability for workers' compensation benefits by one of three methods: (1) self-insurance, (2) private insurance, or (3) state insurance.

Failure to cover workers with workers compensation insurance could mean the employer would be required to pay all medical bills and loss of wages for the injured worker.

Workers compensation laws vary from state to state. Employers should check with the workers compensation official in the state where there company does business to be in compliance with their states workers compensation laws. You can find a list of State Workers Compensation Officials at: U.S. Department of Labor website.

Payroll, payroll taxes and workers compensation are facts of life for businesses with employees. While employees may be absolutely critical to the success of your business, they consume valuable resources that increase your cost of doing business. Make a mistake in calculating payroll withholding taxes and/or paying payroll taxes and you have angry employees and the IRS to deal with.

As you proceed with your business planning, you would be wise to consider purchasing a payroll software program to help process your payroll. Take a look at our payroll software program page to get an idea what types of features and reporting capabilities are important before you buy.