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Workers' compensation insurance is for employees who become injured or ill at work. Although it's a nationwide program, states specify rates and levels of wage replacement. In most cases, workers suffering short-term or permanent disability can receive a benefit equal to about two-thirds of their usual weekly compensation. Weekly pay is determined by the state's insurance fund or a similar agency, from the worker's payroll records.
Workers' Comp Insurance
This insurance covers disabilities that result while the employee is on the job, whether at the workplace or in the field. This employer-paid coverage reimburses employees for medical expenses and lost wages while they can't work. Some states calculate "wage replacement rates" depending on the severity of the disability.
Earnings Replacement Calculations
Within the framework of workers' compensation laws, states set their compensation replacement calculations. States often have multiple levels of wage replacement percentages. For example, a state might have categories of temporary total disability, temporary partial disability, and permanent disability, which can be partial or total. The maximum earnings replacement varies by state, but 66 2/3 percent of the average regular weekly compensation over the previous 52 weeks is the most common.
First, determine your projected wage replacement percentage and amount. Second, estimate the time you might lose because of your injury or illness recuperation. Then multiply the amount of your projected weekly amount by the number of weeks you estimate you'll be unable to work. The result is your expected workers' compensation benefit amount over the term of your inability to return to the workplace. In states that pay lower benefits for partial disabilities, estimate your percentage of average weekly earnings, and the period you'll be unable to do any job, to arrive at your workers' comp benefit amount.
Federal vs. States
The federal government controls workers' compensation calculations for only four primary employee groups. Federal employees and postal workers fall under the Federal Employees' Compensation Act. The Longshore and Harbor Workers' Compensation Act covers longshoremen and harbor workers. In all other cases, states establish their own regulations. Some states allow employers to self-insure, without an insurance company partner.
Payment Percentage and Amount Limits
Although 66 2/3 of your regular weekly wages is a common replacement benefit, states can set their own percentage levels and maximums. For example, in 2013, Texas -- the only state allowing employers to "opt out" of workers' comp insurance -- allows a maximum of $818 per week, based on 88 percent of the average state weekly wage as calculated by the Texas Workforce Commission.
Workers' compensation insurance covers employee medical costs. This coverage is in addition to the cash benefits prescribed by state regulations. In most cases, workers' compensation insurance language relieves employers of liability for negligence or unsafe workplaces; New Jersey is a graphic exception. Employees who want to collect money for liability must sue their employers for "pain and suffering." However, most workers' comp requirements stipulate that employees' medical costs will be reimbursed on a no-fault basis.
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