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Workers’ Compensation Glossary

Author: Chris Boggs

Abandonment of EmploymentEngaging in an activity clearly not intended for the advancement of the employer, nor directed or anticipated by the employer. Includes any activity in direct contradiction to the rules, requests, or expectations of the employer.
“Arising out of…"A causal connection between the furtherance of the business and the injury. If the employer benefits in some way from the activity, the injury or illness suffered in the pursuit of that activity is considered to “arise out of" the employment.
Borrowed ServantAn employee/worker placed under the control of someone other than his or her direct employer.
Casual LaborWork that is not within the usual course of trade, business, occupation, or profession of the “employer" (contracting party). The contractors hired perform duties not normally done by any employee; these laborers are doing work outside the hiring party's normal operational requirements. Essentially, a casual laborer is one that does not directly promote or advance the employer's business or operation and is generally not subject to workers' compensation law or eligible for benefits.
Coming and Going RuleInjury suffered traveling to or home from work, or even while going to and returning from lunch, is generally not compensable. The logic behind the rule is that the employee is not furthering the employer's interest or serving the business' needs.
ComorbiditiesMedical conditions of the injured employee that may exacerbate the current injury or illness, such as diabetes, hypertension, cardiovascular disease, obesity, or other chronic medical conditions.
Contract of Hire“Contract of hire" relates to extraterritorial jurisdictional issues and when to name a 3.A. state based on the employment contract. The state of hire is essentially the deciding factor. A majority of states statutorily subscribe to the contract or hire approach; however, court decisions in these states often apply the “significant contact" test.
De Facto EmployeeDe facto means “in fact or in reality." Employers may call a de facto employee an independent contractor when they are “in fact" an employee. The degree of control the employer has over the worker often influences the worker's classification as either a true independent contractor or a de facto employee.
De Jure EmployeeDe jure means “by right, according to the law." A de jure employee is an employee created by an act of law. In most states, injured employees of an uninsured subcontractor become the responsibility of the general contractor; they become the “de jure employees" of the general contractor by action of workers' compensation law.
Direct EmployeeA worker on the employees direct payroll from whose paycheck taxes and employee benefit costs are deducted.
Doctrinal Employer-Employee Relationship (Special Employer)
  1. The employee (worker) made a contract of hire—express or implied—with the special employer. In essence, did the direct employer volunteer or direct the employee to work for the special employer and did the employee agreed to such assignment?
  2.  The work being done essentially that of the special employer; and
  3. The special employer has the right to control the details of the work.

A person hired to perform certain services or tasks for particular wages or salary under the control of another (the employer); or a worker hired to perform a specific job usual and customary to the employer's business operation in exchange for money or other remuneration. There are four types of employees:

  • Direct Employees;
  • De Jure Employees;
  • De Facto Employees;
  • Borrowed Servants.
ExtraterritorialityWorkers' compensation protection provided in the state from which the worker is based follows the employee when (s)he travels to other states to work on a temporary basis. All states provide extraterritorial benefits at some level.
First Notice of Loss (FNOL) The loss notice completed by the employer describing the injury and the date of loss.
General ContractorAn individual or entity with whom the principal/owner directly contracts to perform specified jobs. Some or all of the enumerated tasks are subsequently contracted to other entities (subcontractors) for performance. Three parties are required before any entity is considered a general contractor: a principal, an independent contractor, and a subcontractor hired by the independent contractor. The independent contractor's status changes to that of a general contractor when any part of the work is subcontracted to another entity.
General Exclusion Classification

These are the opposite of “standard exception" classes. General exclusion class activities are completely unexpected and are not considered part of the analogy of the governing classification of most operations. Employees engaged in general exclusion activities require separation to allow the insurer to garner the usually higher premium for the increased exposure.

Operations and activities falling within the general exclusion classification are: 1) employees working in aircraft operations; 2) employees performing new construction or alterations; 3) stevedoring employees[CB1] [CB2] ; 4) sawmill operation employees; and 5) employees working in an employer-owned daycare.

General Inclusion ClassificationsSome activities are considered an integral part of the business' operations, thus the payroll of individuals engaged in these activities is included in the governing classification. These activities include: 1) employees that work in a restaurant, cafeteria, or commissary run by the business for use by the employees (this does not apply to such establishments at construction sites); 2) employees manufacturing containers such as boxes, bags, cans, or cartons for the employer's use in shipping its own products; 3) staff working in hospitals or medical facilities operated by the employer for use by the employees; 4) maintenance or repair shop employees; and 5) printing or lithography employees engaged in printing for the employer's own products.
Ghost PolicyA “ghost" policy is a workers' compensation policy written for an unincorporated business with no employees and which does not extend coverage to the business' owner(s); or a policy written for an incorporated business that excludes all executive officers with no other employees.
Independent ContractorAn entity with whom a principal/owner directly contracts to perform a certain task or tasks. Independent contractors are generally engaged to perform operations not within the usual trade or business of the principal, and generally such tasks are contract-specific. All work required of the contract is performed by the independent contractor and employees.
Interchange of Labor RuleThe interchange of labor rule is an exception to the governing classification rule. Applicability of this rule varies by state; some states allow its use only in the construction, erection, or stevedoring classes of business while other states permit the interchange of labor rule to apply to any type of business operation. Interchange of labor rules allow a single employee's payroll to be split between or among several class codes that may be present within the operations. Certain requirements must be met before this rule can be applied.
“In the course…"A function of the timing and location of the injury or illness. The implication is that the injury must occur during operations for the employer, or "during employment," and at the employer's location, or a location mandated or reasonably expected by the employer.
Independent Medical Examination (IME)A tool where a physician who is not a treating physician examines the injured worker's medical records, examines the injured worker, and opines on the employee's physical condition and in some cases whether the accident could have arisen as a result of his/her job duties.
Lag TimeThe time period between the date of injury and the date when the insurer receives the first notice of loss. Lag time is a critical factor in managing claims costs. The longer the time between the injury and the insurer involvement, the more claims costs increase.
Legal PersonA “legal fiction." A person created (or born) by the filing of legal documents with the jurisdictional authority. Examples include corporations, professional associations and LLCs in a few states.
Limited Liability Company (LLC)An LLC is a hybrid legal entity combining the advantages (mostly tax-based) of a partnership and the liability protection offered by a corporation. Members are simply the owners of the LLC and may or may not participate in the day-to-day management of the company. Members involved in the management maintain a dual role as both members and managers.
Maximum Medical Improvement (MMI)An employee reaches MMI when his/her medical condition is as good as it's going to get, in layperson's terms. No medical treatment will normally improve the condition, so a state of medical plateau. This is the goal of workers' compensation claims management, to help the employee reach MMI.
Monopolistic StatesEmployers must purchase the workers' compensation policy from the state. Only four monopolistic states remain in operation: North Dakota, Ohio, Washington, and Wyoming. Employers' liability coverage is not offered in these states and this coverage must be procured by alternate means.
Natural PersonA flesh and blood human being. Sole proprietorships and partnerships are always natural person employers in workers' compensation. Managers and members of an LLC are viewed as natural persons in a majority of states, making these natural persons the employers in those states.
Nurse Case ManagerAn occupationally trained nurse hired by the carrier to coordinate the medical benefit process for injured workers. They may advocate for the employee, attend doctors' appointments and help to facilitate a return to work post injury.
Occupational InjuryAn injury arising out of and in the course and scope of employment.
Occupational DiseaseIllness directly attributable to work conditions and exposures; such injury or illness must arise out of and in the course and scope of employment. To be considered “occupational" and therefore compensable, the disease must arise out of or be caused by conditions peculiar to the work. Medical opinion leading to the conclusion that an illness is work-related is not necessarily based on the disease but on the facts surrounding the patient's sickness.
Permanent Partial DisabilityThe employee has suffered an injury from which he will never recover, but one that will not prevent him from returning to some type of work. Amputation of a finger or leg, or the loss of an eye or ear are examples of this injury classification.

A person can be a natural person or a legal person. A natural person is a flesh and blood human. A legal person is created by articles of incorporation or other such legal documentation.

Natural persons and legal persons are equal under the law. Both have the right to own property, sell property, hire, fire, sue, or be sued.

Permanent Total DisabilityA disability from which recovery is not predicted; the employee is not expected to ever be able to return to work. Full paralysis, total blindness, and total loss of hearing are examples of such an injury.
Putative EmployerThe special employer rather than the direct employer. Status as the “employer of record" at such a specific time is “put" upon the individual or entity based on several factors, the most obvious is the amount of control the person/entity has over the worker.
ReciprocityThis relates to travelling employees in regard to the acceptance of the coverage extended from the state the employee left to work in another state on a temporary basis. The concept of reciprocity answers the question, does the state to which the employee travels to work on a temporary basis recognize the coverage extended from the state the employee left?
RemunerationHow employees are compensated for work done for an employer.
Remuneration Excluded from Payroll Audit
  • Tips & other gratuities (subject to minimum wage exceptions – meaning if hourly pay plus tips do not equal minimum wage, the amount to make up the difference is included as remuneration in the audit);
  • Group Insurance/Pension Plan contributions made by employer;
  • Special rewards for individual invention or discovery;
  • Severance pay;
  • Pay for those on active military duty;
  • Employee discounts;
  • Expense reimbursements – if substantiated by the employer's records;
  • Money for meals for overtime work;
  • Work uniform allowance;
  • Sick pay paid by a third party (can't you just hear the duck – Aflac);
  • Employer-provided perks (company autos, incentive vacations, memberships); and
  • Employer contributions to salary reduction, employee savings plans, retirement or cafeteria plans.

Remuneration Included in Payroll Audit


  • Wages or salaries including retroactive wages or salaries
  • Commissions: If the employee is on a draw, and the draw is greater than commissions earned — use the entire amount of the draw;
  • Bonuses, included stock bonus plans - unless the bonus is awarded for individual invention or discovery;
  • Overtime: One-third of amount is subtracted from the total amount (one-half is subtracted if the employee earned double-time pay);
  • Davis-Bacon wages or wages from a similar prevailing wage law;
  • Pay for holidays, vacations, or periods of sickness;
  • Pay for time not worked (i.e., paid for an 8-hour day when only 7 hours worked);
  • Pay for travel time to or from work or specific job site;
  • Employer payments of amounts otherwise required by law (i.e., Statutory insurance, Social Security, etc.);
  • Contributions to a savings plan or vacation fund required by a union contract;
  • IRS Qualified Salary Reduction Plan (i.e. 401K) (refers to the employee's contribution and any qualified agreement between the employer and the employee to pay into a retirement plan in lieu of direct wages);
  • Employee Savings Plans: Only the amount put in by the employee, not the employer's match, (includes contributions to an IRA) if any;
  • Payment on any basis other than time worked such as piecework, incentive plans or profit-sharing plans;
  • Payment or allowance for hand tools or power tools used by hand provided by employees either directly or through a third party and used in their work or operations for the insured;
  • Car allowance (not a company car, a car allowance);
  • The rental value of an apartment or house provided for an employee based on comparable accommodations, along with utilities paid by the employer on behalf of the employee;
  • The value of lodging other than an apartment or house received by employees as part of their pay to the extent shown on the insured's records;
  • The value of meals received by employees as part of their pay to the extent shown on the insured's record;
  • Substitutes for money such as the value of store certificates, merchandise, credits or any other substitute for money received by employees as part of their pay or in lieu of pay;
  • Expense reimbursements to employees to the extent that an employer's records do not substantiate that the expense was incurred as a valid business expense; and
  • Payment for filming of commercials, but this EXCLUDES subsequent residuals, which are earned by the commercial's participants each time the commercial appears in print or is broadcast.
Return-to-Work/Stay- at-Work (RTW/SAW) PolicyStrategies developed by employers to keep an employee in the workforce after a workers compensation injury. This may include modifying the employee's original job duties or creating RTW/SAW duties that do not exceed the employee's physical limitations.
“Scope of employment…"Refers to an analysis of the motivations of the employee, the employer's direction and control over the actions of the employee, and the employer's ability to foresee the activities of the employee. Employee actions which ultimately lead to an accident or injury must be motivated—in whole or in part—by the “desire" to further the interests of the employer. Motivation or desire can be out of fear that failure to perform will result in the loss of a job, or from a more altruistic desire to do well for the employer. The basis for the motivation or desire is irrelevant; it is the fact that the motivation exists that places it within the “scope of employment" and therefore, leads to compensability. Further, the actions must, to some extent, be at the presumed direction of the employer or potentially foreseen by the employer.
Significant Contact TestThis test is applied when making jurisdictional decisions to determine which state benefits the employee can access. Significant contact tests base these jurisdictional decisions around the employee. Three primary tests/questions work to determine which states need to be scheduled as primary, 3.A. states. These questions are: 1) Where does the employee live? 2) Where does the employee primarily work? And 3) In what state was the contract of hire made? If a preponderance of contact (or “significant contact") evidences a state not listed as a 3.A. state, there may be a gap in protection.
SitusThe first test before an employee can be considered a longshoreman or harbor worker. Situs requires that the employment be on, above, or below navigable waters and adjoining areas. However, working around or over water does not, in itself, qualify an individual for the benefits prescribed by the USL&HW (United States Longshore and Harbor Workers) Act. To qualify for such coverage requires satisfying the “status" test as well.
Standard Exception Classifications

Some duties/activities are considered so common to most business, and/or such duties may be so far outside the operational activities of the business, that employees engaged in these activities are considered exceptions to the governing classification rules. Payroll for these “standard exception" classes of employees is subtracted from the governing classification and assigned to the applicable standard exception code and rated separately from the governing class. The standard exception classes include: 1) Clerical Employees – Class Code 8810; 2) Clerical Telecommuter – Class Code 8871; 3) Drafting Employees – Class Code 8810; 4) Salespersons – Class Code 8742; and 5) Drivers – Class Code 7380.

Standard exception classifications are not necessarily limited to these five class codes; some states utilize state-specific class codes that are also eligible for assignment as standard exceptions.

StatusTo be considered a longshoreman or harbor worker requires that the employment involve the loading and unloading of ships, or the maintenance, repair, or dismantling of ships.
Temporary Partial DisabilityAn injury from which the employee is expected to completely recover in some period of time with little or no long-term effects. A broken arm is a good example if this type of injury. Employees suffering a temporary partial disability can generally return to work under “light-duty" assignments until the “temporary" condition heals.

Temporary Total Disability


A full recovery from the injury is expected, but for a period of time the employee is completely unable to work due to the injury. These types of injuries might require bed rest or hospitalization while the employee recovers.


Last Updated: February 27, 2023

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