Compensation may be defined as the amount payable by the employer to the employees for injuries sustained by them in the course of their employment. It covers the medical expenses or any other expenses incurred by the employees in the course of doing the work-related activities.

Compensations are usually paid either as base pay and/or as a variable pay.The 'base pay' implies that the amount of compensation is based on the role played by an employee in the organization and in the market showing the expertise required to conduct that role.Under it,all retiral benefits like superannuation,provident fund,gratuity and house rent allowances are proportionate to basic salary. Whereas 'variable pay' means that the amount of compensation is based on the performance appraisal of an employee in that role,that is,how well they accomplish their goals.

In India,the law governing the provisions of compensation is th e Workmen's Compensation Act, 1923 (WC Act). The Act is administered by State Governments through Commissioners for Workmen's Compensation. The Act provides for the compensation to the workman or his family in cases of employment related injuries resulting in death or disability.It includes persons employed in factories,mines,plantation,mechanically propelled vehicles,construction works and certain other hazardous occupations.The amount of compensation to be paid depends on the nature of the injury and the average monthly wages and age of workmen.The minimum and maximum rates of compensation payable for death (in such cases it is paid to the dependents of workmen) and for disability have been fixed and is subject to revision from time to time.

The Workmen's Compensation Act, 1923 was amended by the Workmen's Compensation(Amendment) Act,2000.Under this amendment,the workmen or their family members will get the compensation money at the enhanced rate if they die or get disabled.

Many insurance companies have also designed certain policies relating to compensation insurance. For example:- Workmen's Compensation Insurance by United India Insurance Company Limited. :- Under it an employer is required to pay compensation to his workers who receive injuries or contract occupational diseases during the course of their work. Such compensation is payable under the Workmen's Compensation Act. An employer may obtain an insurance policy to cover such liability. The premiums are payable usually on the basis of wages. It is also known as 'Employers' Liability Insurance'. This policy provides insurance against the following risks:-