How does a workers’ comp settlement work?: Official guide for employers
Business owners often struggle to understand the process of workers’ compensation settlements. A workers’ comp settlement is a complicated and time-consuming procedure.
A worker is injured on the job every 7 seconds, according to the National Safety Council. Instead of feeling stuck not knowing what to do, follow this guide to learn how a workers’ comp settlement works and how payout amounts are determined.
How does a workers’ comp settlement work?
Workers' compensation insurance is no small matter for employers. The coverage protects employees if they are injured or sick on the job. Benefits help pay for an employee’s medical expenses, lost wages, and other expenses resulting from accidents, occupational diseases, and other workplace injuries.
If you don't have workers' compensation, your injured staff can sue your business if they get hurt on the job. Most states require employers to carry workers’ comp coverage, and you could face severe consequences without it.
However, a workers’ comp settlement is slightly different from workers’ comp benefits. Your injured workers don’t have to accept the benefit offer your insurance carrier provides. They have a choice to hire a workers’ comp lawyer and pursue a monetary settlement instead.
What is my course of action as an employer?
Employers play a vital role in the workers’ compensation system by helping injured employees get the needed benefits to speed recovery.
Because you’ll work closely with the insurance company throughout the process, you’ll want to make sure you have an insurance carrier you can trust. You should feel comfortable reaching out to your provider or agent with questions at any time, and they should answer your questions quickly and competently.
You should train your staff to report a work-related injury or illness immediately—it will help you get the information you need to submit a claim to your small business workers’ comp insurer.
You can also help by providing your staff with your insurance company’s contact information. That way, they can get updates on work injury policies and answer questions about their claim if they become injured.
Be prepared to be patient throughout the process. You must go through several steps to complete your end of a workers’ compensation claim, and it can take time—especially if there are disputes that need to be resolved.
Remember that an employer who commits to working with their workers’ comp carrier is more likely to reach a fair outcome. If possible, start by following these three basic steps:
- Obtain information about your employee’s injury
- File an initial report
- Communicate to keep everyone updated
But that isn’t all—there are additional details you should know and steps you should take during the workers’ comp claims process.
Workers’ compensation claims process
Every workers’ comp settlement begins with a claim. You have a limited amount of time to report an employee’s injury and file a claim after an on-the-job injury or work-related illness. As the employer, you’re responsible for submitting a claim to your workers’ comp insurer—if you miss the deadlines, your provider can deny the workers’ compensation benefits.
The claims process varies from state to state, but here are some general steps you can expect:
1. Get medical treatment
Your employee training should include ensuring your staff knows when and how to report workplace injuries or illness—they should report it to you as quickly as possible. Most states require written notice of the injury, but laws where you live can vary.
Once you become aware of the situation, your first step is to direct your injured team member to get medical treatment if they haven’t already. Some injuries can require immediate attention at an emergency room or urgent care. Other injuries can simply need a doctor's visit for diagnosis and treatment.
If possible, your employee should seek non-emergency treatment from a medical provider that’s part of your insurance provider's network. You can provide a list of options in your local area, and your employee can choose a care provider.
2. Complete necessary paperwork
After making sure your injured worker gets the proper medical care, you’ll need to satisfy some legal requirements:
- Let your employee know about their rights, workers’ comp benefits, and how to return to work
- Give your employee the proper forms to document the injury and begin the claims process
If you’re not sure which forms you need, contact your insurance carrier—they understand the ins and outs of workers’ comp requirements and can guide your next steps.
3. Notify your workers’ comp insurance company
Employers are usually responsible for sending the claim form and supporting documentation to their workers’ comp insurer. The doctor your employee sees will also submit a medical report.
Your state may require you to fill out and submit a first report of injury form to your state’s workers’ compensation board. However, your location determines which documents are required and who is responsible for completing them.
4. Claim determination
Your insurer will review the reports and other documentation to approve or deny the claim. If the carrier denies benefits, your employee has two options:
- Request a claim reconsideration
- File a formal appeal
If the claim is approved, the insurer will notify you and your employee. Typically, your employee and the employee’s lawyer (if they have one) can:
- Accept the benefits and payment offer
- Negotiate a settlement
Settlement amount determination
The settlement process typically starts with an offer from the insurance company. The amount can include payment for future treatment as well as currently unpaid benefits or medical bills. For more severe injuries, such as if the worker is permanently impaired, the settlement can include disability benefits.
An injured employee and their workers’ compensation attorney can typically choose between two settlement types:
- Lump-sum payments
- Structured payment
A lump sum settlement is what it sounds like—a one-time payment in a single lump sum that’s paid to cover all medical costs and benefits for the claim. Structured settlements allow the employee to receive payments in regular intervals for a specific period.
What goes into a settlement agreement? That’s a great question because it’s a complex calculation. Workers’ comp settlements can include:
- Outstanding medical bills
- Past or future lost wages
- Attorney fees
- Future medical expenses (surgery or physical therapy, for example)
- Temporary or permanent disability payments
As you can see, the payout depends on several factors, from medical benefits and wage loss to future benefits and future medical care. The calculation can vary by location because state workers’ compensation laws and restrictions also come into play.
Typical payout amount
Many workers’ comp claims end in a settlement, especially if your employee is left with a permanent or partial disability. But settlements don’t happen for every claim. If your worker can get back to work soon after the accident and doesn't have a disability due to the injury, they might not get a settlement offer.
When a settlement is offered, it’s not easy to boil the payout down to a single number. The amount is individualized because it depends on the severity of the worker’s injury and their current compensation.
Workers’ comp case settlements average around $21,800 with payouts ranging from $1,800 to $50,000 or more. Many factors influence the amount, including the state your business is in. For example, in 2020, the average workers’ comp settlement in Michigan was $59,236.
A $50,000 settlement might not seem like much, but that amount can be the tip of the iceberg in some cases—the largest workers’ comp case settlement happened in March 2017 and was a $10 million agreement.
The important thing to remember when it comes to settlements is there’s no typical amount. Every injury and subsequent claim is different. A worker who suffers a career-ending injury might be entitled to a much larger payout than an individual who misses less time from work.
Why workers’ comp insurance is vital for your business
We all want to avoid workplace accidents, but the reality is that they do happen. Business owners can be held liable when workers suffer an injury or illness caused by an accident on their property or during their job duties.
Without workers’ compensation insurance, you could end up in court with a major lawsuit on your hands. Besides helping you avoid the headache of a court case, workers’ comp insurance enables you to protect the health and well-being of your employees if they’re injured on the job.
That’s why workers’ compensation insurance is so vital to your business. It protects you from liability when employees are injured at work. Coverage typically includes any medical bills, including future medical treatment, and loss of wages related to an accident or illness that happens while working for your company—whether it was preventable or not.
Don’t face a workers’ compensation case alone. Huckleberry is here to help. We take away the hassle of getting coverage by providing workers’ comp estimates, a streamlined online process, and guidance for businesses.
Premiums are more affordable than you might think, and we’re making it easier than ever to get quality workers’ comp insurance. Get a workers’ comp quote in 5 minutes or less with no paperwork and instant coverage.