Workers’ Compensation: What It Is & How It Works (2026)

How Does Workers’ Comp Work?

Workers’ comp operates similarly to an ordinary insurance policy. However, states strictly regulate insurers and the handling of workers’ compensation claims.

After an employee suffers an injury or occupational illness, they must notify their employer. The time limit to notify employers varies from state to state. In most states, the sooner you notify your employer, the better.

Someone then files a claim with the insurer. In some states, the employer files the claim. In other states, such as Illinois, the employer notifies the insurer which, in turn, sends the claim forms to the worker to complete.

The insurer investigates the claim to determine whether it falls within the scope of workers’ compensation, meaning that the injury must meet certain requirements. The duration of this process can vary, with straightforward claims resolved in a few weeks, while more complex cases may take several months or longer. If the injury does not meet these requirements, the insurer can deny coverage. Most states allow insurers to deny coverage for the following reasons:

• The worker was not injured
• The injury did not happen in the course and scope of the employment
• The worker is not a covered employee, such as an independent contractor
• The worker’s intoxication caused the injury
• Horseplay caused the injury
• The worker intentionally caused their own injury
• The worker missed a deadline

In most cases, the insurer finds coverage for the injury and pays workers’ comp benefits, which are tax-free. These benefits include payment for reasonable and necessary medical treatment, therapy, and medication, provided the worker follows compensation rules. When the worker misses enough work days, they may also become eligible for temporary disability benefits equal to a predetermined percentage of their average weekly wage.

If the worker applied for permanent disability benefits, the insurer may offer a workers’ comp settlement to resolve the case rather than paying for medical coverage and a weekly disability benefit. Likewise, families that pursue death benefits may receive a settlement offer. Similar compensation structures apply in cases like black lung disease, where coal miners suffering from severe respiratory conditions may be eligible for settlements based on the severity of their illness and long-term impairment.

State Variations in Workers’ Compensation Rules

States have specific workers’ compensation rules. These can vary depending on the individual workers’ compensation acts, which is why having legal assistance is so crucial.

Knowing what employees are covered is one important piece of information when filing these claims. In California, for example, part-time workers, undocumented immigrant workers, minors and residential employees are all covered. People who are self-employed or who are volunteers may not be covered, however.

In Florida, employers with fewer than four employees may not have to carry workers’ compensation insurance. Those employees would therefore not be covered, with one of the few exceptions being those who work in the construction industry.

There are also a variety of filing deadlines that you will need to keep in mind from one state to the next. The process of actually filing the claim could also be significantly different, requiring experienced representation to ensure that simple errors don’t end up earning you a denial.

Workers' Compensation Benefits: What Do They Cover?

Work-related injuries can be expensive. To offset that cost, workers’ compensation benefits usually cover the following areas:

Lost Wages

Workers’ compensation will pay you for the income you lose while you’re recovering. However, injured workers aren’t paid their full salary. Individual states have different requirements, but you’ll usually be paid about two-thirds of your typical wage.

Vocational Rehabilitation

As part of workers’ compensation, you may be entitled to receive a voucher for participating educational institutions. These allow you to retrain in a new job or enhance your skills so that you can find a position suitable for any limitations you may have as a result of your injuries.

Federal Coverage Programs

Some federal employees may be entitled to certain programs, like black lung benefits. The Black Lung program assists coal miners who are totally disabled because of black lung disease. There are similar federal programs for other serious illnesses.

Disability

Some injured employees are able to return to work relatively quickly. However, if your injury causes long-term or permanent disability, you may receive disability payments as well. How much you’re paid depends on your specific injury.

Medical Care

Workers’ compensation also covers the cost of medical care related to your injury. However, you must seek treatment from an approved doctor.

Survivor Benefits

If your work injury results in your death, your family or dependents may receive workers’ compensation payments.

Even if you are fired while receiving workers' compensation, you may still be able to collect it, depending on the circumstances of your case. It’s important to understand that being fired does not automatically disqualify you from receiving the benefits you’re entitled to.

Average Workers’ Compensation Settlements

Workers’ compensation settlements can vary significantly, but there are some averages by affected body part that can provide an idea of what to expect. Injuries that affect the head have some of the highest settlement amounts. For medical expenses, the average is $60,200, while indemnity can be up to $31,700.

High-cost injuries also include neck wounds, with medical expenses averaging out to $35,700 and indemnity to $32,300. Other injuries that fit into this high-cost category include those that affect the legs, since they impact mobility.

Moderate cost injuries are those that impact the back, hips and arms. Hip and thigh injuries, for example, can earn an average settlement of $36,700 and indemnity costs of $25,400. If you experience back pain after a car accident, compensation can include $18,100 for medical expenses and $22,300 for indemnity.

The workers’ comp settlements that tend to be the lowest are those involving feet, toes, hands, fingers and chest injuries.

Workers’ Compensation: Common Claim Denials and How to Appeal

Sometimes, even completely legitimate workers’ compensation claims are denied by insurance providers. These are some common reasons for denials:

• There isn’t enough medical documentation of your injury.
• You never sought medical treatment for the injury.
• You had a pre-existing condition that increased your likelihood of injury.
• You did not report the injury to your employer within the required timeframe.
• You did not stop working after your injury.

If your claim is denied, you have the right to appeal it. However, before doing so, it’s wise to consult a workers’ compensation lawyer. Your lawyer can determine why your claim was denied and build a strong case for your appeal.

The state workers’ compensation commission or board often steps in after a claim denial. The person seeking workplace injury compensation can seek a review of the insurer’s decision. This process often involves a hearing with a workers’ comp commissioner or administrative law judge.

During the hearing, lawyers for the worker and insurer will present evidence and legal arguments. After the hearing, the hearing officer issues a decision determining whether the worker receives workplace accident compensation.

An attorney can dramatically increase your chances of a positive outcome, but how much does a workers' comp lawyer cost? Fee arrangements can vary between states and individual lawyers, but you generally don’t pay anything up front. If your lawyer manages to get a settlement for you, you pay them a contingency fee, which is a certain percentage of your total compensation.

Who Pays for Workers' Compensation?

Although employees benefit from their employers having workers’ compensation insurance, they generally don’t contribute to insurance premiums. Employers are responsible for selecting their own insurance policy and paying premiums.

History of Workers’ Compensation

Under the common law of the past, employees had to sue their employers for compensation after a workplace injury. This system had many drawbacks. Both sides had to pay legal fees to hire lawyers, and workers had to delay medical treatment until a lawsuit ended, leaving them injured and unable to work in the meantime. Employers also risked paying a large damage award due to an unsympathetic jury.

But in 1911, Wisconsin became the first state to pass laws implementing a workers’ comp system. By 1920, 46 states had workers’ comp insurance systems. These systems now replace the old fault-based system with no-fault insurance.

This means the injured worker received guaranteed benefits from an insurer regardless of the cause of the accident, with a few minor exceptions. With this system, employers have certainty, workers have a safety net, and neither party has to worry about workers’ compensation lawsuits. Here’s what you need to know about workers’ comp.

Learn More About Your Workers’ Compensation Rights From ConsumerShield

Despite the pros and cons of workers’ comp, it is currently the best and only option for employers and employees. However, it has many nuances and complications that can frustrate injured workers in their time of need. Additionally, there are certain aspects of workers' comp that some lawyers may not always disclose, such as the fact that you don’t have to accept the first settlement offer or pay any fees upfront.

ConsumerShield is dedicated to educating people about their legal rights and connecting them with skilled lawyers who can represent them. Contact us for a free case evaluation today.