Workers' Compensation

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DEFINITION of 'Workers' Compensation'

A state-sponsored system that pays monetary benefits to workers who become injured or disabled in the course of their employment. Sick pay may qualify as workers' compensation under certain conditions. Workers' compensation first appeared in the U.S. in the 1930s and 1940s.

INVESTOPEDIA EXPLAINS 'Workers' Compensation'

Workers' compensation should not be confused with disability insurance or unemployment income; it only pays workers who are injured on the job, while disability insurance pays out regardless of when or where the insured is injured or disabled. Workers' compensation also does not cover unemployment. Unlike unemployment income or disability benefits, workers' compensation is always tax-free.

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