Glossary
Payroll

Workers’ Compensation

By: Alec Hollingsworth
Updated:  
June 16, 2025

DEFINITION:

Workers’ Compensation is insurance that covers employees’ medical costs and lost wages if they are injured or become ill due to their job.
Workers’ Compensation is a legally mandated insurance program that provides wage replacement and medical benefits to employees who become injured or ill due to their job. It is designed to protect both employers and employees by ensuring that workers receive necessary care and compensation, while employers are shielded from lawsuits related to workplace injuries. Coverage and requirements vary by state, but most nonprofits with employees are required to carry workers’ compensation insurance. Proper management of workers’ compensation ensures compliance with labor laws and helps maintain organizational reputation by demonstrating a commitment to employee well-being.

Key Takeaways

  • Legally required insurance for workplace injuries.
  • Protects both employees and employers.
  • Premiums are part of payroll expenses.
  • Requirements vary by state.

Why It Matters

It ensures compliance with labor laws and protects organizations from legal and financial risks related to workplace injuries.

Real World Example

A small nonprofit arts organization employs several part-time staff to manage community classes. One day, a staff member slips and injures their back while setting up equipment. The nonprofit’s workers’ compensation insurance covers the employee’s medical expenses and part of their lost wages during recovery. The organization reports this payroll-related expense in its accounting system, ensuring accurate financial records and regulatory compliance. Without workers’ compensation, the nonprofit would have been exposed to significant legal and financial liability, potentially jeopardizing its operations and reputation.

How Aplos Helps

Aplos provides integrated payroll solutions for nonprofits, helping organizations track and report on employee compensation, including workers’ compensation insurance. By utilizing Aplos, nonprofits can ensure that payroll expenses, including those related to workers’ compensation premiums, are accurately allocated and reported for compliance and transparency.
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Frequently Asked Questions

Is workers’ compensation required for all nonprofits?

Most states require nonprofits with employees to carry workers’ compensation insurance, but requirements may vary based on staff size and location.

How does workers’ compensation affect payroll accounting?

Workers’ compensation premiums are a payroll expense and should be tracked and allocated within the organization’s financial records.

Can volunteers be covered under workers’ compensation?

In most cases, volunteers are not covered under standard workers’ compensation policies. Some states or policies may offer specific coverage options.

Related Terms

Grant Amendment
Cost Center
Pledge
Top-Down Budgeting
Budget Narrative
In‑Kind Contribution

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