The Small-Business Owner's Guide to Workers' Compensation Insurance

Chapter 1: Workers' Compensation Insurance: The Basics
Part 1: A Brief (Non-Boring) History of Workers' Compensation

Ever wonder how Workers' Compensation Insurance came to be? Let's take a brief tour through the coverage's history and discover why it's a mainstay in American workplaces.

Workers' Compensation's Ancient Roots

Though Workers' Compensation Insurance may seem like an entirely modern construct, you may be surprised to learn its roots trace back to ancient Sumer (present-day Iraq). According to Gregory Guyton's A Brief History of Workers' Compensation New browser window icon., in 2050 B.C., ancient Sumerian law outlined compensation for injury to a worker's specific body parts. For example, the loss of a thumb was worth half the value of a finger.

The beginnings of Workers' Compensation Insurance trace back as far as 2050 B.C.

Ancient Greek, Roman, and Chinese laws also implemented similar "schedules" for specific injuries and the monetary compensation the maimed parts deserved. Their distinction between "impairments" (the loss of function of a body part) and "disabilities" (the loss of ability to perform certain tasks) still informs our Workers' Comp laws today.

The Evolution of Workers' Comp

The rise of the Industrial Revolution meant extreme working conditions in early factories. Hazards were plenty, and injury rates were colossal. Though hurt workers rarely received compensation, they could turn to the courts for help.

Image of fire, oil lamp, and light bulb.

However, the legal framework for compensating injuries was exceptionally restrictive — so restrictive that the following principles became known as the "unholy trinity of defenses." If the employer could prove these to be true about the injury, the worker couldn't claim a farthing:

  • Contributory negligence. The employer wouldn't be held liable if the worker was responsible for his own injury, regardless of how hazardous the machinery or work environment was. So if a worker slipped and lost a hand, they wouldn't receive compensation.
  • The "fellow servant" rule. If a fellow employee caused the worker's injuries, employers were not held liable.
  • Assumption of risk. This doctrine held that employees accepted the hazards of their work when they signed their contracts. To make matters worse, many industries had employees sign contracts that relinquished their right to sue for injuries. That's why these unfair documents earned the grim moniker "death contracts."

Luckily, the rise of Realpolitik in Prussia would usher in the end of these dark times for workers. Chancellor Otto von Bismarck implemented a system of social insurance, known as the Employers' Liability Law of 1871. This provided some social protection for workers in certain factories, quarries, railroads, and mines.

In 1884, Bismarck championed Workers' accident insurance, which laid the groundwork for today's Workers' Compensation Insurance.

Workers' Comp Trickles to America

Unfortunately, the trend toward compensating workers for their occupational injuries was a little slower to hit the United States. It took Upton Sinclair's shocking 1906 novel The Jungle, which details the horrors workers experienced in Chicago slaughterhouses, to stir the public's outrage.

Eventually, Congress passed the Employers' Liability Acts of 1906 and 1908, which made contributory negligence doctrines less restrictive. Between 1898 and 1909, New York, Maryland, Massachusetts, and Montana attempted and failed to pass workers' compensation acts.

Wisconsin passed the first comprehensive workers' compensation law in 1911, while Mississippi was the last state to jump aboard in 1948. These early laws required employers to provide medical and wage replacement benefits for injured workers. If the injured employee accepted these benefits, they forfeited their right to sue the employer.

Today, this basic structure for Workers' Comp is essentially the same. Most states require employers to carry Workers' Compensation Insurance for their full- or part-time employees.

The Occupational Safety and Health Act: A Very American Law

Other countries, such as the United Kingdom, have laws that govern occupational safety across the entire country (or, in the case of the UK, several countries). The United States doesn't have one neat and tidy law. Most of our health and safety laws — including those that regulate Workers' Compensation Insurance systems — are dictated by the states.

This freedom was spelled out in the Occupational Safety and Health Act (OSHA) of 1970, which says the states could govern workplace safety as long as their programs were as good as the newly minted federal program.

Back in the day, the United States didn't have much in the way of workplace health and safety laws — and it showed. In 1969 — one year before OSHA was enacted — about 14,000 workers died of workplace injuries and illnesses, while another 2 million workers were non-fatally hurt or disabled on the job.

A year before OSHA was enacted, 14,000 workers suffered fatal workplace injuries. 2 million suffered non-fatal injuries.

So OSHA was developed to "assure safe and healthful working conditions for working men and women" by…

  • Setting standards.
  • Enforcing those standards.

But it also, as we mentioned, encouraged states to create their own plans, which OSHA would approve and monitor. Currently, 22 states have State Occupational Safety and Health Plans for both the public and private sectors. Five more states have plans for public employees only. You can read more about the State OSHA Program New browser window icon. on the OSHA website. To learn more about your state's regulations, check out our guide to state Workers' Compensation Insurance laws.

Many states with OSHA programs (but definitely not all!) adopted language identical to that of the federal standards. Below, we take a look at some of the basic requirements that may affect you, the small-business owner.

How OSHA Affects Small-Business Owners

Not all business owners and employees are covered under OSHA. For example, the following groups may be exempt:

  • Self-employed individuals (e.g., freelancers and independent contractors).
  • Some types of farm employees.
  • Workers in industries that are regulated by other federal agencies, such as those in most manufacturing and transportation industries.

OSHA requirements may vary depending on the industry you work in. However, many industries operate under similar provisions, such as ensuring employees have access to…

  • Medical and exposure records.
  • Personal protective equipment.
  • Hazard communication.
  • Paperwork to file OSHA complaints.
  • Notices (posters, brochures, etc.) about workplace health and safety.

For a complete rundown of OSHA's basic provisions, visit this guide on the OSHA websiteNew browser window icon.. Additionally, most employers are required to keep OSHA injury and illness records relating to…

  • Employee deaths.
  • Missed days of work.
  • Restricted work / job transfers.
  • Medical treatment (beyond first aid).
  • Loss of consciousness.
  • Work injuries and illnesses.
  • Other conditions, such as tuberculosis infection or hearing loss.

Though employers must report injuries, illnesses, and fatalities to OSHA, the precise procedure for doing so often varies by state.

Small businesses with 10 or fewer employees don't have to keep OSHA records unless instructed to do so by a federal department (e.g., Bureau of Labor Statistics). However, small businesses are still required to report fatalities and hospitalizations.

Next: Part 2: What Do Workers' Comp Benefits Cover?

Customer Reviews
Rated 4.9 out of 5 Stars

"Amazing customer service, loved that I could do everything via email. Nothing better than that."

"Excellent and responsive service. My agent was out when I called but another person jumped right in and took care of the policy."

Read more reviews...

Download eBook

Table of Contents