Work Comp 101 – What Are Indemnity Benefits?

Note: The following article is for people new to the workers’ compensation field or as a refresher for those in the field.

Indemnity benefits paid to employees for work related disabilities are generally divided into two types—temporary benefits and permanent benefits. Each of the two types, temporary and permanent, are then divided into two additional categories, total and partial. This gives us four categories—temporary total disability (TTD), temporary partial disability (TPD), permanent total disability (PTD) and permanent partial disability (PPD). A fifth category of indemnity benefits is death benefits which some jurisdictions combine with PTD.

Temporary Total Disability (TTD)

The most common indemnity benefit is TTD. In most jurisdictions the amount paid for TTD is based on the formula of two-thirds multiplied by the average weekly wage (AWW) of the employee. A few jurisdictions will use seventy-five percent or eighty percent of the employee’s net pay after income taxes to compute the AWW.

A waiting period for indemnity benefits exist in all jurisdictions. Most jurisdictions have a four to seven-day waiting period before indemnity benefits will start, but a few states have a three-day waiting period. If the employee is able to return to work without any limitations within the waiting period, no indemnity benefits are paid. If the disability continues beyond the waiting period for a set number of days or weeks, almost all jurisdictions will require the insurer to pay indemnity benefits retroactively to the first lost day (or partial lost day) the injured employee was not paid his normal wage.

A lost day due to a work comp injury can be either a full day lost from work or it can be a partial day missed from work. Most employers find it much easier for payroll purposes to pay the employee for the remainder of the day of the accident. For example—the employee works 8 hours per day and normally gets off work at 4:00 p.m., but gets injured at 2:00 p.m. the employer will go ahead and pay the employee through 4:00 p.m. Therefore, the first lost day from work is the day after the accident. However, if the employer elects to pay the employee only through 2:00 p.m., the work comp adjuster calculates the indemnity benefits due from 2:00 p.m. The employee will have a partial lost day on the day of the accident and a full lost day the following day.

Examples of the waiting period and lost days:

• The injured employee is off work two days due to the work comp injury and returns to work without limitations on the third day—no TTD is paid.
• The injured employee is off work nine days and returns to work without limitations, with a seven day waiting period, two days of TTD would be paid.
• The employee is off work 20 days with TTD retroactive to the first day after two weeks off work, the employee is paid 20 days of TTD.

Average Weekly Wage (AWW)

The AWW is determined by the employee’s prior pay history. The jurisdictions vary in the time frame used to calculate the AWW. Most jurisdictions use the previous 52 weeks as a time frame, but some states use the prior 13 weeks or the prior 26 weeks as the time frame. An example using the AWW to calculate the TTD: The employee made $52,000 in the 52 weeks prior to the injury causing the disability. The AWW would be $1,000 with the TTD rate being $666.67 (two-thirds X $1,000).

An employee’s AWW in most jurisdictions includes all compensation, not just the wage or salary. The adjuster should include overtime pay, bonuses, commissions or any other form compensation in determining the AWW. Also, some jurisdictions will include the value of benefits if the employer suspends paying for those benefits during the time the employee is off work.

The amount of TTD has an upper limit cap and a minimum amount. The jurisdictions vary in the dollar amount for the upper limit and the lower limit. A jurisdiction might by statute state the maximum amount of TTD is $800.00 per week and the minimum amount of TTD is $100. 00 per week. An executive making $2,000.00 per week would not receive two thirds of his AWW of $2,000.00, or $1,333.34. The executive’s TTD would be capped at $800.00 per week. A part-time fast food worker making $120.00 would not be limited two-thirds of his AWW, or $80.00. His TTD rate would be the state minimum rate of $100.00.

Temporary Partial Disability (TPD)

During the course of the medical treatment of the injury, the treating physician may determine the employee can return to work but only for a limited amount of time per day. This is when the TPD benefit would come into play on a work comp claim. For example, the injured employee is allowed to return to work for four hours per day and before the injury was working 8 hours per day. The TPD amount would then be calculated by multiplying the AWW by the amount allowed within the jurisdiction by the fraction of the day the employee is unable to work (4 hours divided by 8 hours = one-half). Let’s say the AWW was $900.00 per week prior to the injury. The state statute allows the employee to collect two-thirds of his AWW. The TPD rate would then be $900 X 2/3 X 1/2 = $300. This injured employee on TPD would be collecting half his normal wage or $450 plus his TPD of $300 for a total of $750 per week.

Temporary partial disability is paid until the employee reaches maximum medical improvement (MMI) or is able to return to work full time, whichever occurs first. Some jurisdictions place limits on the number of weeks (or years) an employee can draw TPD.

Permanent Partial Disability (PPD)

When the treating physician determines the employee has reached MMI, the physician will determine the amount of permanent disability, if any, the employee may have suffered due to the injury. The amount of PPD indemnity benefit maybe either a set scheduled amount or it may be percentage of a body part or it can be a percentage of the whole body.

A schedule of injury values is used for the complete lost of a body part in about 40 jurisdictions. Examples of scheduled injuries would be the complete loss of eyesight in one eye or the amputation of one hand. In some jurisdictions the PPD benefit is paid to the employee as a set dollar amount for the complete loss of the body part. For example—the complete loss of the eye is worth $85,000. In other jurisdictions the body part is worth a set number of weeks, for instances, an arm is worth 200 weeks of the TTD rate of $600 per week or $120,000 (200 X $600).

Some jurisdictions will use the schedule for the partial loss of a body part or a partial lost to the body as a whole. The treating physician determines the amount of disability. In many jurisdictions the physician rates the loss of body function using the American Medical Association Guide to the Evaluation of Permanent Impairment. For example—the physician following the AMA Guidelines determines the employee lost 20% of the use of his arm. The employee would receive 20% of the scheduled amount for the value of the total arm. Using the $600 TTD rate, the employee would be paid PPD of $24,000 (200 weeks X 20% = 40 weeks; 40 weeks X $600 = $24,000).

Permanent Total Disability (PTD)

When the treating physician (often in consultation with specialists) determines the employee will never be able to return to work, the employee becomes eligible for PTD benefits. In cases where the employee is rated as 100% disabled to the whole body, PTD is almost automatic.

Determining PTD is less clear cut when it comes to an employee who has suffered severe injuries and is unable to return to work for your company, but who is not classified as 100% disabled. A number of issues will then come into play in determining PTD. The nature and degrees of physical impairment, the educational level of the employee, the age of the employee, and the ability of the employee to be retrained for other suitable work, plus the availability of the other suitable work, are all factors in the determination of PTD.

The amount of PTD varies among the jurisdictions. In some jurisdictions the PTD rate is the same as the TTD rate. In other jurisdictions the PTD rate is lower than the TTD rate and is a percentage of the TTD rate.

PTD benefits are paid until the employee is able to assume work in another field, or until the jurisdiction’s maximum number of benefit weeks is met (in most jurisdictions), or until death (in a few jurisdictions), or until the employee reaches his full social security age (in a few jurisdictions).

Death Benefits

Fortunately, the least common type of indemnity benefit is the death benefit. All jurisdictions provide for the cost of burial, up to a maximum amount. The burial amount varies tremendously among jurisdictions.

A death benefit will be paid to the spouse or to the spouse and dependent children. If there are no dependents, a death benefit in some jurisdictions will be paid to siblings or parents. The maximum amount per week and the minimum amount per week are set by statute in each of the jurisdictions. Most jurisdictions will pay the death benefits to the spouse until she remarries or for a set period of time, with 400 weeks of benefits or 500 weeks of benefits, being the most common time frames.

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Author Michael Stack, CEO Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center. .

Contact: mstack@reduceyourworkerscomp.com.

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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.