How workers compensation settlements work
A workers comp settlement value is built from four numbers. Your average weekly wage. Your wage-replacement rate (usually 66.67%, sometimes 60% or 70%). Your state's body-part schedule or impairment-rating formula. And your state's attorney-fee cap. Get those four numbers and you can calculate the settlement range with arithmetic. Everything else is negotiation around the framework.
This page covers the framework. The actual numbers for your state are at /state/[code]/. The body-part-specific calculations are at /spokes/[body-part]/.
The four components of a settlement
1. Temporary total disability (TTD). Paid weekly while the worker is unable to work and recovering. The amount is the wage-replacement rate (usually 66.67%) times the worker's pre-injury average weekly wage, capped at the state maximum. California's 2024 max is $1,659.23 [state-facts/CA.json]. New York's is $1,196 [state-facts/NY.json]. TTD continues until the worker reaches maximum medical improvement (MMI) or returns to work, up to the state's maximum number of weeks.
2. Permanent partial disability (PPD). Paid for permanent residual impairment after MMI. PPD is the largest single component for most settlements. It is calculated either by a fixed schedule (scheduled states) or by impairment-rating formula (rating states).
3. Permanent total disability (PTD). Paid when the worker cannot return to any gainful employment. PTD typically pays the same weekly rate as TTD but for the worker's lifetime in many states. PTD is rare in absolute numbers but represents the majority of catastrophic-injury settlements.
4. Future medical costs. When the settlement closes future medical, the value of projected lifetime medical care for the injury is included in the settlement. For workers on Medicare or expected to be on Medicare, a Medicare set-aside (MSA) account is typically required by CMS.
The settlement totals these four components plus death-benefit obligations (where relevant), minus any subrogation payments, minus attorney fees and costs.
Scheduled states versus impairment-rated states
The biggest single variable in settlement valuation is whether your state uses a fixed schedule or an impairment rating.
Scheduled states. The state publishes a maximum number of PPD weeks for specific body parts. New York, for example:
- Shoulder: 312 weeks max
- Arm: 312 weeks max
- Knee: 288 weeks max
- Leg: 288 weeks max
- Hand: 244 weeks max
- Foot: 205 weeks max
- Eye: 160 weeks max
- Hearing loss, both ears: 150 weeks max
- Thumb: 75 weeks max
- Hearing loss, one ear: 60 weeks max
- Index finger: 46 weeks max
- Middle finger: 30 weeks max
- Ring finger: 25 weeks max
- Little finger: 15 weeks max
Source: [settlement-charts/NY.json], NY WCL §15(3)(a) and §15(3)(s).
A 50% impairment of the shoulder in New York is worth 156 weeks (50% of 312) at the worker's PPD weekly rate. At the 2024 max rate of $1,196, the maximum value is roughly $186,576 for that injury alone, before any other claim components.
The back, neck, and other non-scheduled body parts in New York are compensated based on loss of wage-earning capacity (LWEC), not a fixed number of weeks. LWEC determinations are negotiated between the worker, the carrier, and the WCB.
Impairment-rated states. California uses the AMA Guides to the Evaluation of Permanent Impairment (5th Edition) to calculate whole-person impairment, then applies occupation-age modifiers per Labor Code §4660 and converts to dollars per Labor Code §4658 [settlement-charts/CA.json]. Florida uses the AMA Guides 6th Edition with weeks varying by impairment percentage [settlement-charts/FL.json].
The two models produce different values for the same injury. A 25% knee impairment in New York is worth 72 weeks (25% of 288) at the PPD rate. The same 25% knee impairment in California depends on the worker's age, occupation, and the AMA Guides 5th Edition adjusted impairment after occupation modifier and diminished future earning capacity calculations.
How to calculate a worked example
Setup: a worker with a $900 average weekly wage suffers a knee injury in New York, reaches MMI with a 25% impairment.
- Wage-replacement rate: 66.67% per state-facts/NY.json
- PPD weekly rate: $900 × 66.67% = $600 per week (no cap issue here; the 2024 NY max weekly is $1,196)
- Scheduled weeks for knee: 288 weeks
- Impairment percentage: 25%
- PPD weeks awarded: 288 × 25% = 72 weeks
- PPD value: 72 × $600 = $43,200
Add TTD already paid during recovery (assume 26 weeks at $600 = $15,600). Add projected future medical (assume $15,000 for ongoing physical therapy and specialist visits over 5 years). Total settlement framework: about $73,800 before attorney fees.
The carrier may offer 70% to 90% of this value to close on a compromise-and-release basis. The worker's attorney will push for the full framework value plus future-medical reserve. The negotiation typically settles in the middle.
This is a worked example for illustration only. Real settlements vary based on the impairment-rating dispute, the worker's pre-injury earnings, the medical-treatment trajectory, and the state-specific procedural rules.
Lawyer fee caps by state
Most states cap workers comp attorney fees by statute. The carrier or worker (depending on state) pays the fee out of the settlement.
- Florida: sliding scale per FL §440.34(1). 20% of the first $5,000, 15% of the next $5,000, 10% of benefits up to $100,000, 5% of benefits above $100,000 [settlement-charts/FL.json]
- California: no fixed percentage cap. Fees are subject to WCAB approval per Labor Code §4906(a). Typical approved fees run 9% to 15% of the settlement [settlement-charts/CA.json]
- New York: no fixed percentage. Fees are approved by the WCB per WCL §24 [settlement-charts/NY.json]
- Texas: 25% cap on fees from worker's recovery, with additional limits on fees paid by the carrier under the lifetime-income-benefits framework
The cap matters most for high-value settlements. A $200,000 settlement in Florida produces an attorney fee of $1,000 + $750 + $9,000 + $5,000 = $15,750 (7.9% effective rate). The same settlement in a 25% cap state produces a fee of $50,000.
For state-by-state lawyer-fee data, see /hubs/lawyer-guide.
Compromise-and-release (C&R) versus stipulated awards
Two main settlement structures.
Compromise-and-release (C&R). The carrier pays a lump sum in exchange for closing the entire claim, including future medical. The worker forfeits the right to additional benefits even if the condition worsens. C&R requires approval from the state workers comp board or commission. C&R is the most common settlement structure in California, Texas, and most NCCI states.
Stipulated award. The carrier and worker agree on the value of the PPD component but the worker retains future medical coverage. Future medical stays open and is paid by the carrier as treatment is delivered. Stipulated awards are common in New York and other scheduled states where future medical is harder to estimate.
The choice between C&R and stipulated award depends on the worker's expected future-medical needs, the worker's confidence that the condition is stable, and the carrier's willingness to extinguish future medical. For most catastrophic-injury cases, the carrier strongly prefers C&R because it caps future exposure. For most soft-tissue injury cases, C&R is also typical because future medical is small.
Medicare set-aside (MSA)
When a workers comp settlement closes future medical and the worker is on Medicare (or "reasonably expected" to be on Medicare within 30 months), CMS requires the parties to consider Medicare's interests under the Medicare Secondary Payer Act.
The mechanism: a Medicare set-aside account is funded out of the settlement to pay future Medicare-covered injury-related medical costs. The MSA amount is calculated by a vendor using projected medical costs over the worker's life expectancy. The worker uses the MSA before Medicare picks up additional injury-related costs.
CMS reviews MSAs above certain thresholds. The current review thresholds:
- Worker is currently on Medicare: any settlement with a future-medical component
- Worker reasonably expected to enroll within 30 months and total settlement exceeds $250,000: review required
- Below the threshold: MSA recommended but CMS review optional
MSAs typically run 5% to 25% of the settlement, depending on the injury severity and the worker's age. They are a substantial line item in catastrophic-injury settlements.
For details on CMS rules, see the CMS Workers Compensation Medicare Set-Aside guidance.
Death benefits
When a worker dies from a work-related injury or occupational disease, dependents receive death benefits. The structure varies by state.
- Lifetime, no cap: Most states pay surviving-spouse benefits for life or until remarriage [state-facts files: NY, OH, ND, WA show lifetime_no_cap structure]
- Capped dollar amount: California caps total death benefits at $495,000 [state-facts/CA.json]. Texas caps at $443,524 [state-facts/TX.json]. Wyoming caps at $610,000 [state-facts/WY.json]
- Capped weeks: Some states pay a fixed number of weeks (e.g., 500 weeks) regardless of dependents
- Spouse plus dependent children: Most states pay an additional weekly amount for dependent children up to age 18, or longer if the child is in school or disabled
Funeral and burial benefits are also paid in most states, typically $7,500 to $15,000.
What changes the settlement value
Beyond the four components, several factors shift settlement values up or down.
Disputed compensability. When the carrier disputes whether the injury is work-related, settlement values drop because the worker faces litigation risk. Settlements in disputed cases often run 30% to 60% of the framework value.
Pre-existing conditions. When the injury aggravates a pre-existing condition, carriers argue for apportionment, which reduces the PPD value attributable to the work injury. Apportionment rules vary; California has aggressive apportionment per Labor Code §4663-4664.
Maximum medical improvement timing. Settlements before MMI usually price too low because the future-medical and PPD components are speculative. Most attorneys advise waiting until MMI before serious settlement negotiations.
Return-to-work success. Workers who return to modified duty during recovery typically have lower PPD valuations because the loss-of-earning-capacity argument is weaker. Workers who cannot return have stronger PTD claims.
Independent medical examinations. Carrier-paid IME doctors often produce lower impairment ratings than treating physicians. The dispute between the IME and treating-physician ratings drives most PPD-component negotiations.
Related resources
This is general information, not legal advice. Workers compensation settlements have substantial financial consequences and limited do-overs. Consult a licensed workers compensation attorney before signing any settlement agreement, and verify the calculations against your specific state's statute and case law.
This is a syndicated post. Original article + interactive calculator: https://wcclasscode.com/settlement-guide/
