How is Workers Compensation Injury Settlement Calculated?

Workplace accidents and injuries are unavoidable and may have a severe impact on employees. It not only affects them physically but also stresses their finances. Thus, injury compensation is given to employees who are affected by such accidents.

It helps them manage treatment expenses, take care of family expenses while they are recovering and more. Injury compensation is calculated based on the type of injury suffered by the employee.

As per Section 4 of the Workmen’s Compensation Act, workplace accidents may cause the following types of injuries to the employees:

• Permanent partial disability

• Permanent total disability

• Temporary disability

• Death

The compensation amount depends on the nature of the disability, which must be calculated as per the rules of the Workmen’s Compensation Act.

Useful Link: Workmen’s Compensation Act

Things to Know Before Calculating Workmen's Compensation Settlement Amount

Here are some aspects that the employer must keep in mind before calculating the amount of compensation for injured workers. These aspects will assist in arriving at the correct compensation amount as per the law.

• A worker who is above 18 years of age is eligible to receive compensation under the workmen’s compensation insurance.

• The maximum wage allowance for workmen's compensation calculation is ₹15,000.

• The regulations for workmen’s compensation policy vary from one state to another. Therefore, every employer must follow the state-specific regulations and guidelines.

• The amount of final injury compensation may be different in different cases as per the formula and rates used.

Note: The workmen’s compensation calculation formula uses classification code and premium rate, which may be different, depending on certain factors.

Estimating the workmen’s compensation payment amount involves a few steps which the employer and employee must diligently follow. These are:

Step 1: Obtain the Records and File a Claim

The foremost thing to do for workers' compensation calculation is to obtain copies related to the facts and occurrence of the accident at the workplace, including the medical reports, witness statements, etc. As a first step, the employee must file a claim with the state workmen’s compensation agency.

Step 2: Assess the Impairment Rating

The next step in calculating injury settlement is the impairment rating. A severe injury is rated 100%, while a fully healed injury is rated 0%. The impairment or injury ratings depend on the physician's medical report. The impairment rating provided by state regulations depends on the type of injury, the healing time and the employee’s salary.

Thus, the compensation amount = healing time x employee wage.

Step 3: Adding the Future Costs

The injury compensation calculation also includes the future expenses related to the accident. These costs must be added to the final compensation settlement amount, irrespective of the nature of the injury (temporary or permanent).

Workmen Compensation Death Claim Calculation

If an employee dies due to an accident at the workplace, the compensation amount that their family receives is 50% of the employee’s monthly wages or ₹1,20,000, whichever is more.

Compensation for Total Permanent Disability

The amount of compensation in the Workmen’s Compensation Act for an employee who suffers total permanent disability due to an accident at the workplace, which is the higher of 60% of their monthly salary or ₹1,20,000.

Compensation for Partial Permanent Disability

When a worker suffers from injuries that are partial and permanent, he is entitled to receive compensation, which is proportional to his reduced earning capacity due to the injury. The permanent partial disabilities are listed in Schedule I of the Workmen’s Compensation Act.

Compensation for Temporary Disability

In case of temporary disability caused to the employee, he must receive compensation, which is 25% of his monthly salary, payable every half month for a maximum duration of 5 years.

Severity of the Injury

The severity and nature of the injury influence the compensation for a worker’s injury. If an employee suffers from severe injuries, the compensation amount is higher and vice versa. For instance, a permanent or chronic injury leads to a higher compensation amount.

Estimated Lost Wages

Compensation for lost wages is calculated based on the income the employee would have earned had the injury not occurred. This factor helps maintain the employee's financial stability by compensating for the period they are unable to earn their regular salary.

Salary of the Employee

The employee's salary is an important factor in workers' compensation calculation. It ensures that the compensation reflects the financial impact relative to the employee's usual earnings, with an aim to mitigate the financial disruption caused by the work-related injury.

Duration of Absence from Work

The longer an employee is absent from work due to injury, the higher the compensation tends to be. This factor considers the length of time the employee is medically unable to perform their job and helps them cover the loss of income for the duration of their absence from work.

Employees Age

The age of the employee can affect the compensation they will receive. It is because you need to consider their potential working years ahead and the impact of the injury on their career longevity.

Financial Security for Employees

Workmen's compensation insurance provides essential financial security to employees who suffer work-related injuries. It ensures that employees receive compensation for medical expenses and lost wages without the need for litigation.

Legal Protection for Employers

By having a workmen's compensation policy, employers protect themselves legally. This insurance helps cover the statutory liabilities of employers in the event of employee injuries or any illness caused by their work environment.

Covers Medical Treatments

A workmen's compensation policy ensures that all medical costs related to work-related injuries are covered. This includes everything from emergency medical care to long-term rehabilitation services. It takes away the financial stress from the injured employee.

Minimises Financial Disruptions

Workmen’s compensation insurance helps minimise financial disruptions for both employers and employees by providing timely payouts for claims. This stability is important for maintaining business operations and employee well-being during recovery periods.

Promotes a Safer Work Environment

Workmen's compensation insurance encourages employers to maintain a safer workplace. It indirectly promotes safety protocols since fewer accidents and claims result in lower insurance premiums.

Understanding the intricacies of workmen's compensation is important for both employers and employees to ensure fair and just compensation for workplace injuries. Various factors, such as the severity of the injury, the duration of absence from work, the employee's salary, etc., play significant roles in determining the compensation amount.

For businesses seeking reliable and comprehensive coverage, choosing the SME insurance policy from TATA AIG is a wise decision. With our workers’ compensation policy, businesses can benefit from a straightforward claims process, robust legal protection and financial stability. Businesses can also ensure a safer work environment and peace of mind.

Opting for the workmen compensation policy online from TATA AIG not only streamlines the process and ensures timely and adequate support in the event of employee injuries.

What are the circumstances where an employer is exempt from paying workers' compensation?

As per section 3 of the Workmen’s Compensation Act, an employer must not pay any compensation to the employee when the following conditions are met:

The injury from a workplace accident does not cause total or partial disability to the employer for more than three days.

An employee suffers injury, or death occurs because the employee disregards the safety norms of the workplace.

If an injury or death occurs under the influence of alcohol.

An injury occurs, or the employee dies because he voluntarily removed the safety guard.

Is legal fees a part of the workmen’s compensation settlement?

Yes, if the employee has incurred any legal expenses related to workmen’s compensation, the amount must be added to the final settlement amount.

What factors must be considered while looking for a workmen’s compensation policy?

When looking for workmen’s compensation insurance, one must consider the extent of coverage. Employers must also consider the benefits, add-on options, sum insured, etc.

Am I eligible for workers' compensation if I am at fault for my injury?

Yes, workers' compensation is a no-fault system. You are generally eligible for benefits even if your actions contributed to the injury, as long as it occurred during your employment activities.