Workers compensation insurance

Definition

Workers compensation is a no-fault insurance system that requires employers (in most states) to cover work-related injuries and illnesses. In exchange for guaranteed medical care and partial wage replacement, employees generally cannot sue the employer for additional damages — this is the "grand bargain" that underlies the system.

Workers comp is regulated state-by-state. Most states operate competitive markets where employers can choose carriers; four states (ND, OH, WA, WY) operate monopolistic state funds; Texas is the only state where workers comp is optional for private employers.

In a PEO arrangement, the PEO typically holds the master workers comp policy and the client business is added as a co-employer to that master policy. The pricing advantage: PEO pool placement can sometimes secure rates a small employer couldn't access standalone.

Common questions about Workers compensation insurance

Related terms

• Experience modifier (Mod) — A multiplier applied to base workers comp premium that reflects an employer's historical claim experience relative to industry peers.
• National Council on Compensation Insurance (NCCI) — The standards-setting organization for workers compensation classification codes used in most US states.
• Monopolistic workers comp state — A state where workers compensation must be purchased from the state fund — private carriers cannot write WC coverage.
• Workers comp class code — A four-digit code that classifies a job role for workers compensation premium calculation purposes.

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This is one entry from our PEO glossary covering payroll, benefits, workers comp, HR compliance, and PEO mechanics. Browse all terms.