What is Workers Compensation and how does it work?

The Workmen’s Compensation Act, 1923 makes it mandatory for an employer to compensate the employee and/or the employee’s family in case the employee dies, becomes injured or suffers a disability during the course of his/her employment. If the employee suffers from any physical contingency due to the nature of his employment, the employer becomes liable to pay for the financial loss suffered by the employee and/or his family. This financial loss might involve medical costs, legal costs, etc. A Workmen’s Compensation policy takes care of this liability of the employer. The policy covers the financial costs payable by the employer to the injured employee thereby saving the employer from considerable financial burden. 

How does the policy work?

The Workman Compensation or Workmen Compensation policy can be bought by an employer to cover his financial liability towards his employees as stated under the Workmen’s Compensation Act. The policy covers ‘workmen’ as defined under the Workmen’s Compensation Act and pays a financial compensation if the workmen suffer a physical injury, death or disability due to or over the duration of their employment.

The coverage amount would depend on the average wage of the workman, nature of injury suffered and the workman’s age. Coverage would be given for death, permanent disablement, whether total or partial in nature, total temporary disablement and any type of legal cost incurred by the employer.

The policy covers the employer’s legal liability in two tables – 

  • Table A covers the liability faced by the employer when the workmen suffer accidental injuries as specified under the Workmen’s Compensation Act, 1923 and the Indian Fatal Accidents Act, 1855
  • Table B covers the liability faced by the employer under common law

Besides coverage for physical injuries and legal costs, the policy also allows extensions which can be chosen by the employer by paying an additional premium. The available extensions include the following :

  • Costs incurred towards medical bills, hospital bills, surgical bills, transportation of the workman to the hospital, etc. in case of an accident covered under the Workmen’s Compensation policy
  • Diseases which are mentioned under Part C of Schedule III of the Workmen’s Compensation Act which are usually not covered but which arise during the course of employment

Though the Workmen’s Compensation policy has an extensive scope of coverage, there are some exclusions too. Common exclusions include the following –

  • Injuries suffered due to war or war-like situations
  • Injuries suffered when the workmen did not follow security measures
  • Injuries suffered due to alcohol and/or drug abuse
  • Injuries suffered outside employment
  • Injuries suffered due to terrorist activities
  • Injuries suffered which do not result in disablement for more than 3 days
  • Injuries suffered due to self-inflicted and deliberate causes
  • Injuries suffered by third party workmen who are hired by the employer for temporary jobs
  • Injuries suffered which were mentioned in a contractual agreement with the workman

A Workmen’s Compensation policy is an important requirement for all businesses which are liable to face the financial impact of any physical harm suffered by their employees during the course of employment. The policy provides good coverage against the unlimited liability faced by organisations and should not be given a miss.