Workers’ Compensation Settlement Guide

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Written By Rocky Horton

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A workers’ compensation settlement involves facing the legal, physical, and financial consequences of an injury you sustained because of your work. Though individual workers’ comp settlements differ, the steps involved in calculating, filing, and settling these claims remain consistent.

Continue reading to learn more about workers’ compensation settlements, including how to calculate your case, exemptions you should watch out for, how long the case should take, how to file your case, and how a personal injury attorney can help you navigate this complex process.

Remember that your employer, their insurers, and your own insurance adjuster are not your allies in your case. Only an experienced work injury lawyer can help when it comes to getting the compensation you deserve for injuries sustained at work.

What is Workers’ Compensation?

Workers’ compensation is insurance usually required by law that your employer purchases to protect their workers in case of an accident. Note that every U.S. state except Texas requires businesses to buy these policies.

Any business could participate in the workers’ comp insurance program, but these are the ones required by law:

  • Any business with four or more employees (part-time and full-time)
  • Any agency of a local or state government
  • Any business in the construction industry with at least one employee
  • Any business in the farming industry with at least 5 regular workers or at least 12 seasonal workers that work at least 30 days

Workers’ comp includes insurance coverage for medical costs and sometimes for additional coverage limits on specific types of injuries, depending on the work. Any claims made through workers’ comp are processed by the state’s Workers’ Compensation Board.

Note that if an insurer denies coverage for a covered injury, the board steps in and ensures that the worker receives compensation for the injuries they sustained.

How Does Workers’ Compensation Work?

Workers’ compensation is bought by the employer to cover their employees. Employees never pay into workers’ comp to receive cash benefits or medical care coverage. Those fees are redirected to the employer’s insurer.

If a workers’ compensation settlement becomes necessary, the case does not go to court to determine fault as would be the case in a separate personal injury lawsuit. Instead, the worker is compensated for the cost of their medical care and loss of wages regardless of the employer’s degree of fault or the worker’s degree of carelessness at the time of the accident.

However, workers’ comp may not cover injuries if the employee was impaired by alcohol or drugs at the time of the accident or intended to harm themselves or others. Even in that case, however, the board would have to decide if their impairment was the sole cause of the accident or if a partial settlement is warranted.

Workers’ Compensation Settlements Overview

Claims can only be paid in a workers’ comp settlement if the injury or illness in question is verified to be work-related. Due to the wide range of possible injuries, some of which are chronic rather than acute, employers sometimes dispute claims.

In that case, the workers’ compensation settlement would go to court before a judge, who would have to decide based on the available evidence if the injury was sustained as a result of the claimant’s work.

Employers rarely dispute claims involving an isolated incident, such as a worker falling off a scaffold. However, a claim involving long-term illness, such as cancer development due to exposure to toxins at work, could be more easily appealed. Medical evidence and in-depth examinations would be required to determine the cause of the injury.

Note that while the workers’ compensation settlement is being ruled, the worker may be able to collect disability benefits to help pay for their injuries and their loss of work. The reward money does not add to the settlement, however, as any payments made for disability will be later subtracted from any compensation they receive from the workers’ comp settlement.

How to Calculate Your Workers’ Compensation Settlement?

The basic rule for calculating the workers’ compensation rate is to divide the estimated annual salary of the employee by 100 and then multiply the result by the premium rate mandated by the Workers’ Compensation Board based on the employee’s class code.

This means that workers’ compensation rates differ by state and even between different employees at the same business. Employers will adjust their worker’s compensation rates at the end of the year if the final payroll differed from the projected amount used to calculate the rate during the previous term.

Other factors that change the premium rate for workers’ comp include the location of the business, based on statistics of injury rates and other factors for that area, and the experience level of that business’s employees. Less experienced employees are almost always more expensive to insure.

How Long Do Most Workers’ Compensation Settlements Take?

Workers’ compensation settlements take around 16 months on average to settle, but that number could be higher or lower depending on the severity of the injuries, the stance of the employer’s insurer, and whether the case requires a formal hearing.

For instance, a clean-cut case involving a worker’s injury could be resolved in a few weeks or months. Many employees can expect their workers’ comp checks in the mail in 4-8 weeks.

The 16-month average is likely inflated by the few cases involving years-long litigation, especially in cases involving cancer or wrongful deaths where the employer appeals a settlement to avoid liability. Those cases can take years due to the evidence that needs to be collected and the appeals that will likely be made.

How to Get a Workers’ Compensation Settlement?

In order to obtain a workers’ comp settlement, you must first file a workers’ comp insurance claim. To file a workers’ compensation claim, you must keep track of all the relevant details, get timely medical treatment, and record essential contact information that could be important to your case. A successful workers’ compensation settlement is often more complex than that, but those are the basic steps.

  1. Get treatment for your injuries right away from an insurance-authorized medical provider. Remember to describe your injuries and the cause of them in explicit detail so the doctor documents your case correctly.
  2. Write everything down about the circumstances of your injury. If applicable, take pictures of the scene, and collect the contact information of any witnesses that could be of help.
  3. Report the incident to your employer immediately so that your claim can start being processed. Failure to report an incident often results in ineligibility for compensation.
  4. Make sure the insurance company has been informed with any details about the incident and your injuries.
  5. Document your injury, including any medical bills, medication costs, or therapy bills that you pay for.
  6. Appeal your claim if the insurer denies your settlement.
  7. File a work-related lawsuit against your employer if necessary.

Is a Workers’ Compensation Settlement Considered Income?

Workers’ compensation is not considered earned income so that workers can get their full benefit amount without worrying about federal and state income tax. This may be confusing at first since many workers’ comp settlements are paid in part to recover lost income.

While in most cases, workers’ compensation settlements do not count as income, it does count as income for SSI or Supplemental Security Income. If you are disabled by the accident in question and qualify for SSI, your SSI will be offset by your workers’ compensation settlement.

Note that the difference, either the average monthly payments or a lump sum divided up evenly, would be considered income.

Are Workers’ Compensation Settlements Taxable?

Workers’ comp is non-taxable because the IRS classifies it as a benefit in the same way that it exempts disability benefits and personal injury claims. Though you are not obligated to list your workers’ comp benefits on your tax return, you should ask your workers’ comp attorney about the best way to file.

Note that there are a few circumstances where workers’ compensation is considered taxable income. These mostly involve situations where a workers’ comp settlement affects your Social Security, in which case the benefit may be taxed along with it.

These situations include:

  • A settlement of over $25,000 for those who file as single, married and separated, widow or widower, or the head of a household
  • A settlement of over $32,000 for those who are married and filing jointly
  • Those who are married and filing separately but lived with each other during that year

Do You Need a Workers’ Compensation Lawyer?

You need a workers’ compensation lawyer due to the complex nature of cases involving injuries sustained at work. You have not only your injuries to deal with but also your employer’s insurers and the pressure of filing correctly and on time.

An experienced attorney will know the workers’ comp regulations in your state, the filing process, and the quickest routes to the evidence you need to support your case, should your settlement require a judge’s verdict.

Though you could organize the case yourself, many self-represented settlements end on the side of the employer’s appeal due to a lack of convincing evidence or a failure to follow procedure. A workers’ compensation lawyer in your corner gives you the best chance of getting the compensation you deserve.


A workers’ compensation settlement draws from state-mandated insurance to compensate you for injuries sustained at your place of work. While many cases resolve in a matter of weeks, appeals or a lack of evidence could cause your settlement to drag out for months. An experienced workers’ compensation attorney can help you receive compensation for your injuries without burdening you with the complicated process of filing for damages against modern corporate insurers.

Rocky Horton

Rocky Horton


Rocky Horton is a health and safety expert from Chapel Hill, NC. He is the founder of AccidentAdvisor and has been featured in Forbes, Bloomberg, and other publications. Learn more.