Workers' Compensation Facts Employees need to be assured that if they are injured on the job, their medical benefits will be taken care of and they will receive some income continuation while they are unable to work. The workers' compensation program covers job-related injuries and illnesses. Income replacement benefits are provided-at the employer's expense-for disabilities that are temporary or permanent, partial or total. Benefits are also provided to surviving dependents in the case of job-related deaths. In addition, full medical care and, to a limited extent, vocational rehabilitation are covered. The benefit to the employer is that employees who are injured must turn to the workers' compensation system as their exclusive means of redress. Employees covered by workers' compensation do not have the legal right to sue a negligent employer in court for punitive damages. Types of Benefits There are income replacement benefits for: Temporary disabilities Permanent disabilities Death Partial as well as total disabilities Medical care needed to treat job injuries and illnesses, even if no compensable income loss occurs In cases with identified rehabilitation potential, services aimed at restoring employability Amount of Benefits The minimum for total disability benefits is normally two-thirds of pre-disability earnings. This amount is constrained by maximum weekly benefits that average about 90 percent of state weekly wages. In most states, there is also a minimum benefit that is the lesser of a set figure or actual earnings. Death Benefits Death benefits for surviving dependents are ordinarily set at one half to two thirds of the deceased workers' wage up to maximum limits similar to those for total disability. Partial Disability Partial disability benefits are less standardized, both in amount and method of computation. Nearly all states have a schedule of impairments that can be clearly defined, such as loss of a limb or loss of vision in one eye, for which predetermined numbers of weekly payments are allowed. Moreover, all states have a separate arrangement for compensating partial disabilities that do not fit on a schedule, such as back injuries. In these cases payments are based on a determination of: The workers' overall impairment as a percentage of total impairment; Workers' predicted wage-earning capacity as compared to predisability earning capacity; or The record of actual wage losses due to the disability. Tax Consequences Workers' compensation benefits are not subject to state or federal taxation. Consequently, actual replacement rates are higher than nominal rates, especially at higher income levels. Legal Requirements Workers' compensation is mandated by state law. Each of the fifty states has a workers' compensation law; forty-seven states make coverage mandatory. Only three states-New Jersey, South Carolina, and Texas-give employers the option of declining coverage. NOTE: Even where permitted, declining coverage is risky business, because it means the employer can be sued for punitive damages if an employee becomes injured through the employer's negligence. And, that will almost certainly be more costly than what the workers' compensation premiums would be. Employers Covered Whether an employer is required to participate in a state's workers' compensation system depends on the number of people employed and, in some cases, the type of business. State workers' compensation laws spell out these requirements. For example, state law may not require coverage for domestic or casual employees; charities also may have the option of declining coverage. NOTE: Independent contractors are not covered by workers' compensation because they are not employees. This is also a focus of concern in the current controversy over health care, and will likely be addressed in any healthcare reform legislation.