Workers’ Compensation: Mandatory Protection for Employees and Businesses

**Workers’ Compensation Insurance** (often called “Workers’ Comp” or simply “Comp”) is mandatory in almost every state for businesses with employees. It provides wage replacement and medical benefits to employees injured on the job in exchange for the employee’s relinquishment of the right to sue the employer for negligence.

The Dual Benefit System

This insurance provides protection for both the employer and the employee:

• **For the Employee:** Pays for all necessary medical care (doctor visits, hospital stays, rehabilitation) for the work-related injury, and provides partial wage replacement (typically 66% of the average weekly wage) during recovery.
• **For the Employer:** Provides **Employer’s Liability** coverage (Part Two of the policy), which protects the business from lawsuits alleging negligence related to the employee’s injury.

Pricing and Classification

Premiums for **Workers’ Compensation** are determined by a complex formula based on:

1. **Employee Classification Codes:** Higher risk jobs (e.g., roofing) pay higher rates than lower risk jobs (e.g., office work).
2. **Payroll:** Rates are applied per $100 of payroll.
3. **Experience Modification Rate (Mod):** A factor calculated based on the business’s actual claims history versus the average claims history for similar businesses. A low Mod means lower premiums.

**Workers’ Compensation** is non-negotiable for businesses, serving as the primary financial mechanism for managing workplace injury risks.