Workers' compensation law is a compromise between business and labor, a compromise that has benefits for both. The system provides workers with prompt medical and disability/wage benefits. It sets standards for employer liability and requires financial reserves for such liability, thus cushioning the economic effect of work injury and illness for the employer. It delivers no-fault benefits, at least theoretically allowing for a straightforward administrative and litigation-free system.

Of course, there are drawbacks. In some cases, an individual worker may receive less than he or she would receive at common law--that is, if the worker went to court, alleged negligence, and won. On the other side, in some periods, employers are plagued by the intrusion of attorneys in record numbers into the system, as well as skyrocketing medical costs and spiking premiums. Nonetheless, the work accident insurance system has been a great boon to society, reducing worker-employer conflict, improving work safety, helping the survivors of fatal work accidents, and protecting the public coffers from the needs of destitute and disabled workers.

Most workers' compensation programs are established and governed by state law. However, there are a few federal programs:

Workers' compensation is regulated at the state level. Except for federal employees and certain maritime and railroad workers, there is no national system for compensating people injured on the job. State laws define the types of injuries that are compensable, set the levels of cash benefits, establish waiting periods before benefits begin, and detail procedures for filing, contesting, and settling claims. While there are many common elements in terms of coverage, benefits, and administration, each state has its own system of insurance to cover employee claims arising from occupational injury and illness.

Workers' compensation coverage is compulsory in every state but Texas, and even Texas provides strong incentives for employers to provide such coverage. In all other states, employers that do not carry workers' compensation insurance are violating the law and will be hit with a variety of penalties, ranging from substantial fines to prison time or both. Beyond that, an employee who is hurt on the job and whose employer does not have workers' compensation insurance may sue at common law. If this happens, the typical defenses--assumption of risk, contributory negligence, reckless behavior, failure to use provided safety equipment or techniques--are closed to the employer. Also, the claims and awards at common law, such as negligent infliction of emotional distress and punitive damages, may go far beyond the benefits that workers' compensation provides.

Workers' compensation is a no-fault system. This simply means that negligence or fault in the accident's cause is not at issue, and that in almost all cases, a covered employee who is hurt or diseased merely has to show that the injury arose as a result of the employment (in some states, partially as a result of the employment or was aggravated by the employment) and during work time. The official phrase for this is “out of and in the course of employment.”

Who is not covered. Categories of covered employees differ from state to state. Generally, however, workers covered by federal workers' compensation laws are not covered by state law. In most (but not all) states, domestic workers, casual employees, farm workers, the clergy, and independent contractors are not covered.

What is not covered. In most (but not all) states, injuries resulting from a worker's intoxication, intention to harm himself or another, the worker's “coming and going” (i.e., commuting) injuries, and injuries resulting from recreational activities are not covered.

Most state workers' compensation laws are “extraterritorial.” This means that an employee hired in one state, who is hurt while out of state, is eligible for workers' compensation under the hiring state's law. Some states limit the time the employee can have been out of state for coverage to apply; some states give the employee the option of claiming coverage under either state.

There are several options for securing coverage.

Commercial insurance. An employer may buy commercial or private insurance through an authorized insurance carrier. Private carriers pay benefits, investigate and pay claims, arrange for auxiliary benefits (such as rehabilitation services), and perform administrative chores.

Self-insurance. The majority of states allow an employer that qualifies financially to self-insure, i.e., pay and administer claims itself.

Group self-insurance. In some states, two or more employers in similar businesses may, with approval from the state workers' compensation division, pool their workers' compensation coverage.

State funds. Many states have state workers' compensation insurance funds through which employers may purchase insurance coverage. In some states, these funds are the exclusive source of coverage. In others, the state funds compete with private insurance carriers.

Residual insurance. The residual insurance market offers coverage to companies that have difficulty getting insurance normally, because they're in hazardous businesses or have poor accident records. Premiums are, accordingly, higher. Residual insurance is generally offered by the private insurance market.

24-hour coverage. A few states are experimenting with procedures that combine workers' compensation and health insurance under one insurance policy (called “24-hour coverage”).

Workers' compensation has evolved into a system that is largely common to all states, and includes the following categories.

Workers' compensation pays full medical costs for covered injuries or illnesses. It also provides compensation for physical (and in some cases, mental) disability.

In addition to medical benefits, workers' compensation also compensates for loss of earning capacity resulting from disabilities. Almost all the states group disabilities into the following categories.

Total disability. A total disability results from an occupational injury or illness that leaves a worker entirely unable to earn a living, whether permanently or temporarily.

Partial disability. Injuries or illnesses that allow the person to work, but not at his or her regular job, normal hours, or normal earnings level, are called partial disabilities. Most states have two separate classifications for partial disabilities, with a different payment arrangement for each category:

Wage replacement benefits, as well as burial and funeral expenses, are available in every state for the surviving spouse and dependents of an employee who dies as a result of a work-related injury or illness. The amount of compensation is usually the same as for total disability.

Many states require the employer to provide physical rehabilitation--meant to help the injured worker with the physical aspects of recovery and return to work. Additionally, a number of states mandate vocational rehabilitation for the worker whose injury prevents him or her from returning to their prior position, but who may be retrained or reeducated for a new job with the old employer, or with a new company.

If the reason a worker is out for work injury would otherwise qualify for a leave under the Family and Medical Leave Act (FMLA), and the employer is covered under the FMLA, the employer generally will want to designate the leave as FMLA leave. Final FMLA regulations provide that leave taken pursuant to a workers' compensation would be considered FMLA leave for a serious health condition and counted in the leave entitlement permitted under the FMLA, if the situation otherwise meets the criteria for FMLA leave. In such a case, the employer may designate the leave as FMLA leave and count the leave against the employee’s FMLA leave entitlement with the workers' compensation absence and the FMLA leave running concurrently. Please see the national Leave of Absence section.

What does it mean that workers' compensation and FMLA run concurrently? FMLA leave is normally unpaid, but under these circumstances, wage replacement will be paid by workers' compensation. It also means that a person who is out on workers' compensation leave and FMLA leave concurrently may not be fired for absence, even if the person is out of work well beyond the employer's cutoff absence day.

When a worker is out of work because of a job injury and the employer believes it to be an FMLA leave as well, the employer should notify the employee, in writing, and tell the person that he or she is entitled to FMLA rights as well as being responsible for its obligations. An employer may not declare workers' compensation leave as FMLA leave retroactively if it knew or should have known that the leave qualified as FMLA leave.

The employee who is out on FMLA leave is not required to take an alternate or modified duty job. However, an employee who refuses a job he or she is capable of doing is likely to lose workers' compensation benefits.

Many states also have state medical leave laws that may differ in some respects from federal FMLA. Employers should review these state acts as well.

Substitution of paid leave. FMLA final regulations permit an eligible employee to choose to substitute accrued paid leave (such as sick, personal, or vacation leave) for FMLA leave. If an employee does not choose to substitute accrued paid leave, the employer may require the employee to substitute accrued paid leave for unpaid FMLA leave with the paid leave provided by the employer running concurrently with the unpaid FMLA leave. But because leave pursuant to a workers' compensation law is not unpaid, the regulation provides that neither the employee nor the employer may require the substitution of paid leave. Employers and employees, however, may agree, unless prohibited by state law, to have paid leave supplement the workers' compensation cash benefits, such as in the case where the workers' compensation law only provides replacement income for only two-thirds of an employee’s salary (29 CFR Sec. 825.207).

In most cases, the definition of disability under state workers' compensation laws differs from that under the ADA, because the state laws serve a different purpose. An ADA disability is any impairment, work-related or not, that “substantially limits one or more major life activities of a person or the person has a record of such an impairment or is regarded as having such an impairment.” Workers' compensation laws are designed to provide needed assistance to workers who suffer work injuries, whereas the ADA's purpose is to protect disabled people from discrimination.

Many workers' compensation injuries are not “disabling” under the ADA because they do not substantially limit a worker's ability to perform a major life activity. But it is also possible that an impairment that is not “substantially limiting” in one circumstance could result in disability in other circumstances. For example, suppose a construction worker falls and breaks a leg and the leg heals normally within a few months. Although this worker may be awarded workers' compensation benefits for the injury, he or she would not be considered a person with a disability under the ADA. However, if the worker's leg took significantly longer to heal than the usual healing period for this type of injury, and during this period the worker could not walk, he or she would be considered to have a disability. Or, if the injury caused a permanent and limiting limp, the worker might be considered disabled under the ADA.

The Health Insurance Portability and Accountability Act (HIPAA) Privacy Rule creates national standards to protect individuals’ medical records and other personal health information, and gives patients more control over their health information. It sets limits on the use and release of health records. It sets out safeguards that providers and health plans must implement to protect the privacy of health information. Please see the national Health Information Privacy (HIPAA) section. Health plans and medical providers are allowed to disclose medical information without authorization when required to do so by a workers’ compensation law. It will thus be permissible under most state laws for a provider to disclose protected health information to a workers’ compensation insurer for the purposes of processing a claim for benefits. The workers’ compensation insurer could then provide this information to the employer because a workers’ compensation insurer is not a HIPAA-covered entity. Some state laws may specifically provide for the direct release of information to the employer, but employers may still want to provide authorization forms to employees filing workers’ compensation claims.

In recent years, the amount employers paid for workers' compensation insurance rose at an alarming rate. The causes of this increase are a matter of continued debate, but medical expenses were certainly an important culprit. In addition, “downsizing” may have led employees to be more inclined to seek workers' compensation benefits in order to get as much out of the employer as possible. And when the workforce is stretched thin, employees may have more accidents.

The increase has slowed in many states--largely because of reform legislation, changes in the way medical services are provided, strong safety programs, an emphasis on finding and cutting out fraud, and increased return-to-work programs. Also, employers retaining some, or all, of the risk may be helpful in lowering their workers' compensation costs.

Human resources managers, insurers, and labor consultants recommend investigating the following programs that may limit the costs of workers' compensation. Some can be tackled in-house by individual employers. Others require legislative or administrative changes to state workers' compensation systems.

Managed care in workers' compensation means the employer's affiliation with an organization for which health care providers work (usually called an HMO) or that offers a list of physicians and other care providers (a PPO). An increasing number of states certify managed care organizations and allow employers to contract with them for workers' compensation coverage. In most of these states, the employer may limit employee choice of doctors to those on the organization's list. In addition, many of the managed care techniques used to curb nonoccupational group health costs may be applied in the workers' compensation area, including negotiation of provider discounts, utilization review, case management, and medical bill audits. Some workers' compensation watchers believe that the advent of managed care in workers' compensation has had a moderating effect on costs, since it allows employers at least some measure of control over the employee's choice of doctor and the treatments given. Managed care is still in its infancy in workers' compensation, and time will tell whether it is really effective in reducing medical costs.

Many states require employers to have an effective safety program at the workplace. Depending upon the states, such programs may involve worker training, safety equipment, and safety techniques. The benefits are manifold:

Establish a safety committee made up of employees and management representatives to review the circumstances of workplace injuries and to recommend corrective measures for reported hazards. A number of states require such committees or the establishment of a safety program. Also, an increasing number of insurance carriers--including state insurance funds in some cases--are offering premium discounts for employers with effective safety programs. And some states mandate benefit reductions if workers are injured because they violate the employer's specific safety rules. Be sure that safety rules are effectively communicated to employees and consistently enforced.

Note: In order to stay on the safe side of the National Labor Relations Act, be sure the safety committee discusses safety--and only safety--and that your management representative does not dominate the agenda, discussion, or recommendations.

Every commentator insists that one element is absolutely required for a company to have an effective safety culture: top management commitment to the program.

The restoration of an experienced employee is of far greater value to the company than bringing an inexperienced and untried worker on board. Returning a regular, experienced employee back to the job can bring substantial benefit savings and improve productivity. Further, there is evidence that employees who return to work quickly are less likely to seek an attorney than those who remain on disability leave.

Some states have laws requiring the employer to offer an injured employee a modified duty or light duty job. In the states that have such “return to work” laws, the employer does not have to create a new job, but if one is available and the employee can perform it, it must be offered.

A number of states have established state insurance fraud units with authority to prosecute fraudulent claimants, employers, insurers, and health care providers. Penalties may include large fines and substantial jail sentences. Some states require insurers to institute their own fraud squads for investigating workers' compensation claims. In addition, many employers have instituted fraud units in their companies. These developments have already made quite a dent in workers' compensation costs.

Employer monitoring. While most employees on workers' compensation follow their medical rehabilitation programs conscientiously, evidence suggests that a minority of employees fabricate symptoms, cancel physical therapy appointments, and are insincere about getting off compensation and back on the job. The costs fall not only on employers, but also on the malingerer's fellow employees. By forcing the payment of wages for no work and wasting money on medical treatment, the employer is forced to skimp on such things as pay raises, safety programs, and fringe benefits. Be on the lookout for the following common signs of malingering and possible fraud:

Employee was new to job when injury was reported. Typically, abusers of the system have no intention of doing any actual work, and they will usually try to arrange things so that they don't have to spend any more time than necessary on the job.

Injury is reported immediately before a work stoppage of some kind. While everyone else has to struggle through a strike, layoff, or shutdown without regular pay, the malingerer continues to collect without interruption.

Injury is reported Monday morning, and there are no witnesses. People who get hurt over the weekend sometimes try to turn their injuries into cash by faking an accident at work.

Spotty work history. Malingerers frequently get caught and have to move on. Look for periods of unexplained idleness in their work records.

Employee is difficult to reach. An employee who is disabled from an on-the-job injury should be at home during the day. An employee who can't be reached by telephone could be working another job or even traveling out of town.

Frequent change of care-providers. No sooner does the doctor catch on that there's mischief afoot then the malingerer changes physicians, hoping to stretch out the disability payments just a bit longer.

Report claims promptly to the insurer, and be sure to notify the insurer or attorney if there is reason to believe that a claim is not based on a valid injury. Alert the insurer to any signs of malingering. Compile a “repeater list” to show which employees are improperly trained, improperly qualified, or “professional claimants.”

In addition, there are a number of cost-cutting strategies that can be implemented within the employer's own organization.

Immediate action. Studies have shown that the more quickly the employer gets involved in a workers' compensation claim, the sooner it is resolved. Take prompt action and stay involved.

Pre-assignment physical exams. Screen applicants for preexisting conditions and drug use, within the limits of applicable disability discrimination and drug-testing laws.

Note: Asking about a person's health before offering an applicant a job is a violation of the ADA. However, an employer may do so before assigning an employee to new duties. Be sure the examining physician is familiar with the physical demands of the individual's prospective job assignment and heed the doctor's advice on appropriate accommodations.

Job classification. Be sure employees are properly classified within their risk class. Improper rate classification can be costly.

Payroll calculations. Pay insurance premiums based only on straight time, not overtime, vacation pay, or sick leave. Most states allow this.

Morale. Keep morale high. There is evidence that employees with morale problems are more likely to be injured. Absenteeism is one indicator of employee morale. Anticipate injuries by monitoring absenteeism.

Self-insurance. Almost all states these days allow employers to self-insure their workers' compensation obligations. This means that the employer assumes some or all of the losses itself, and does not purchase workers' compensation insurance. Sometimes, the employer buys excess insurance for losses that (for the employer at least) would otherwise be financially catastrophic. Most states require employers to post a bond, or in some fashion show proof of their ability to pay benefits. Usually, the employer must have been in business in the state for a certain number of years. There are a number of other financial and regulatory obligations for employers that want to self-insure. They are most burdensome as start-up costs.

Group self-insurance. Many states allow group self-insurance. Groups generally are required to be in the same business.

Benefits of self-insurance. An employer may expect a better cash flow through self-insurance, because it does not have to pay premiums in advance. Also, because the employer is very aware of what claims it is paying, and why, there is generally more emphasis on safety and all other methods of loss and risk control, as well as greater involvement in the claims process. Also, administrative costs may be considerably lower for the self-insuring employer. To a great extent, the success of a self-insured employer depends on how effectively it manages its loss control and claims programs.

Third-party administrators (TPA). Outside companies will act as TPAs for administration responsibilities, and offer a variety of services, including claims management, safety surveys, safety training, rehabilitation, and others. At a minimum, the TPA should process claim reports, file them to the state, investigate claims, recommend physicians and medical facilities, assist in rehabilitation, and see to subrogation. Typically, claim and loss control services cost from 10 percent to 15 percent of the employer's normal insurance premium.

Deductibles. Deductibles are a useful cost-control tool for employers. Today, nearly all nonmonopolistic states have approved deductible plans for workers' compensation insurance. The benefit of deductibles, particularly large deductibles (they apply per claim), is that they offer many of the benefits of self-insurance without the high start-up costs, separate insurer services, and regulations.

Some cost-control measures may be undertaken only at the legislative or administrative level. Banding together with other employers improves the likelihood of success of any reform efforts. Many states have already established joint labor-management committees to study reforms of their workers' compensation systems. Reforms could include:

The pressure for reform has characteristically been highest when circumstances have turned critical, but there is no reason for employers to wait until disaster strikes. Pressure today might well prevent crisis later on.

The prospect of contracting COVID-19 in the workplace can raise tough legal and factual questions regarding the applicability of workers’ compensation. Many states are directly taking on the question of when COVID-19 infection will be deemed work-related, but their approaches vary, and employers often must proceed in the absence of clear guidance. For example, many states have extended coverage to first responders and healthcare workers.

Even as employees return to work, spikes in infection rates could require you to revise your return-to-work plan to comply with additional state and local guidance or industry best practices. Furthermore, our knowledge of the symptoms, prevention, transmission, and treatment of the coronavirus is evolving. A return-to-work plan must also evolve. Revisions may be necessary to eliminate practices no longer deemed effective or to implement different strategies.

Consider distributing a written communication to employees explaining the return-to-work mitigation measures you have taken to reduce the spread of COVID-19. Clearly communicating the steps you have implemented (and those you expect employees to take) both documents your commitment to employee safety and reassures nervous workers.