Workers’ Compensation: How Injured Employees Are Paid

By Sherri Dugger

As an employer, you should be aware of what is required of you when an employee is injured at your workplace. Generally speaking, employers with five or more employees must carry insurance coverage for workers’ compensation. Employers in construction, trades or coal mining must carry coverage if they have one or more employees (For full requirements, please visit the TN DOL Workers’ Compensation Division website.). Employers must pay the entire premium for coverage. This article will cover temporary disability benefits only. There are different requirements for permanent disability and death benefits, which can be found at the TN DOL website.

Temporary Disability Benefit Payments

Workers’ compensation payments are considered temporary disability benefits. They are paid by the insurance company or self-insured employer and are to replace lost wages. Failure to timely pay benefits will result in penalties.

To determine temporary disability benefits, generally, total wages earned (including bonuses and overtime) during the 52 weeks prior to the injury, are divided by 52 to get the employee’s average weekly wage. The average weekly wage is then multiplied by .667 to determine the employee’s weekly compensation rate. The benefits paid must fall within the current weekly minimum and maximum rates, which change each year.

Timing of Payments

Disability begins only after the authorized treating physician takes an employee off work and benefits are to begin on the eighth (8th) calendar day of the disability. If the disability lasts fourteen (14) days or more, benefits will be paid back to the first day of disability.

During the waiting period before the temporary disability benefits begin, employees may use vacation/personal time to supplement their income but are not required to do so.

Payments Are Tax-Exempt

Amounts received by employees as workers’ compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers’ compensation act or a statute in the nature of a workers’ compensation act…so, there is no 1099 issued for the income.

Insurance Not Required

If an employer is not required to have workers’ compensation insurance and an employee gets hurt at work, the injured worker is not entitled to workers’ compensation benefits, but the employee is not barred or prohibited from filing a lawsuit against the employer.

More Information

There are many requirements pertaining to workers’ compensation that employers should be aware of. Please read more on the Tennessee Department of Labor website to ensure you are in compliance.