Worker’s Compensation – Definition

Cite this article as:"Worker’s Compensation – Definition," in The Business Professor, updated September 20, 2019, last accessed October 26, 2020,


Workers’ Compensation Definition

Workers’ compensation refers to an approach that helps workers in receiving monetary incentives in the event of injury or disability during the tenure of employment. It is considered to be a form of insurance that gives workers or employees protection against prospective injuries or disabilities at work.

A Little More on What is Worker’s Compensation

Workers who receive the benefit of worker’s compensation lose the authority to file a suit against their employer in case of carelessness. This is more likely a compensation bargain that safeguards the interests of both employees and employers. While workers usually sacrifice further recourse in return for a sure amount, employers agree to be liable for a specific amount of compensation instead of bearing huge damages of a big lawsuit based on negligence. Ever party including taxpayers don’t have to bear legal expenses required for processing a suit.

Coverage Offered by Worker’s Compensation

Employees who suffer injury or disability during the course of work get their medical expenses covered. For instance, a factory worker will get worker’s compensation if some mishappening takes place at work. However, they won’t be eligible for the claim if they meet a car accident while they are on their way to work. In some cases, workers get the amount that is equal to sick pay while being on medical leave. In case, the employee or worker dies during the course of employment, his or her family will be eligible for claiming worker’s compensation fund.

Though the employers are free from any negligence under the compensation bargain, but it doesn’t mean that compensation tends to be a foregone result. There are situations when it is unclear to assess if an employer is responsible for the worker’s injury. Also, there can be cases when injuries at work are not reported in some sectors.

In legal terms, informing an employer about a work related injury doesn’t involve any penalties. However, one cannot apply this interpretation on sectors such as construction factories where the majority of tasks are based on worker’s strength and physical capabilities. Some workers can also misuse this cover by claiming that the injury took place at work, even if it took outside the work premises.

People should not confuse worker’s compensation with unemployment income or disability insurance. This compensation is only applicable for workers who get injured or hurt at work. However, disability insurance offers payment irrespective of the timing and location where the injury or disability takes place. Unemployment has nothing to do with worker’s compensation fund. While disability incentives and unemployment income involve taxes, worker’s compensation cover is exempt from any kind of taxes.

Workers’ Compensation at the State and Federal Level

In the U.S., independent states regulate and organize workers’ compensation funds. The U.S. Department of Labor, that conducts Office of Workers’ Compensation Programs, has  the sole responsibility of devising compensation rules for federal workers, longshoremen and coal miners. As there are no set rules and policies for workers’ compensation, the payments for the similar nature of injury differ in several states. Hence, it is advisable for employees and workers to research about the state and firm’s compensation policies, in case of any unfortunate circumstances.

As per the latest reports, the benefits offered by the workers’ compensation cover have reduced significantly in most of the states. Even if workers face kind of work injury, the compensation will depend on the location where they reside. This makes it more crucial to study compensation policies locally. Also, studies have stated that this inequality in workers’ compensation has a correlation with income inequality issues.

References for “Workers’ Compensation Catastrophe Cover › Careers › Salaries & Compensation…/workers-compensation-catastrophe-co…

Academic research “Workers’ Compensation Catastrophe Cover

Catastrophic responses to catastrophic risks, Epstein, R. A. (1996). Catastrophic responses to catastrophic risks. Journal of Risk and Uncertainty, 12(2-3), 287-308.

Medical Savings Accounts: Lessons From China: China’s medical savings accounts coupled with catastrophic insurance have yielded mixed results, so far., Yip, W. C., & Hsiao, W. C. (1997). Medical Savings Accounts: Lessons From China: China’s medical savings accounts coupled with catastrophic insurance have yielded mixed results, so far. Health Affairs, 16(6), 244-251.

Catastrophe risk, insurance and terrorism, Ericson, R., & Doyle, A. (2004). Catastrophe risk, insurance and terrorism. Economy and Society, 33(2), 135-173.

Experience modification rating for workers’ compensation insurance, Everett, J. G., & Thompson, W. S. (1995). Experience modification rating for workers’ compensation insurance. Journal of Construction Engineering and Management, 121(1), 66-79.

Pollution liability insurance and catastrophic environmental risk, Katzman, M. T. (1988). Pollution liability insurance and catastrophic environmental risk. Journal of Risk and Insurance, 75-100.

Comparative analysis of large scale catastrophe compensation schemes, Freeman, P. K., & Scott, K. (2006). Comparative analysis of large scale catastrophe compensation schemes.

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