Most businesses with employees need workers’ compensation insurance. Period. It’s legally required in nearly every state, covering full-time, part-time, and seasonal workers. The coverage handles medical bills, lost wages, disability, and death benefits when employees get hurt on the job. Sole proprietors without employees usually get a pass, but hire even one person and the rules kick in. Skip it and face fines, penalties, or even stop-work orders. The specifics depend on where the business operates and what industry it’s in.

Design Highlights

• Most states legally require businesses with employees to carry workers’ compensation insurance for full-time, part-time, and seasonal workers.
• Sole proprietors, partnerships without employees, and independent contractors are typically exempt but may voluntarily purchase coverage.
• Four monopolistic states require employers to purchase coverage exclusively from state funds rather than private insurers.
• Workers’ compensation covers medical expenses, lost wages, disability benefits, and protects businesses from employee lawsuits.
• Operating without required coverage results in penalties, fines, stop-work orders, and potential legal liability for workplace injuries.

Workers’ Compensation Insurance for Your Business

Workers’ compensation insurance isn’t optional for most business owners—it’s the law. Nearly every state mandates this coverage if you have employees. Full-time, part-time, sometimes even seasonal workers. They all count. The insurance covers medical expenses, lost wages, disability benefits, and death benefits when work-related injuries or illnesses occur. It’s separate from your general business insurance, like a Businessowners Policy. You can’t just bundle it in and call it a day.

State requirements differ wildly. Some states require coverage if you have just one employee. Others set different thresholds. Four states—North Dakota, Ohio, Washington, and Wyoming—operate as monopolistic states, forcing employers to purchase coverage exclusively from state funds. No private insurers allowed. Other states let you choose between private insurers, state funds, or becoming your own insurer if you qualify. Certain industries face stricter requirements. Healthcare, manufacturing, construction. The high-risk sectors don’t get to skirt around this.

Four states operate as monopolistic markets—North Dakota, Ohio, Washington, and Wyoming—where employers must buy coverage exclusively from state funds.

Small businesses with employees typically must carry workers’ compensation insurance. Sole proprietors and partnerships without employees usually get a pass. But even when coverage isn’t legally required, it might be smart—especially if your industry involves physical risk. Coverage can come from private insurers, state funds, or approved self-insurance programs. Some states allow small businesses to opt out under specific conditions, but those situations are limited.

Self-employed individuals and independent contractors normally aren’t required to have coverage. Some states permit them to purchase it anyway. Contractors might need coverage if they hire employees or if their contracts demand it. Even 1099 contractors and volunteers may qualify for benefits in certain states if they’re injured on the job. Coverage for the self-employed can protect against work-related injuries and lost income, but it’s not usually mandatory.

Employers must secure coverage for all eligible employees. Period. You can buy insurance, get approval for self-insurance, or become a qualified employer through your state’s process. Exemptions exist for sole proprietors, partners, and immediate family members in some states, but those are narrow carve-outs. The workers’ compensation agreement represents a compromise where workers relinquish the right to sue their employers in exchange for guaranteed medical care and benefits. Workers’ comp also typically includes employer liability insurance to cover legal costs if employees file lawsuits outside the standard claims process.

Employers must follow state-specific procedures for reporting and handling claims. New employees should receive information about their workers’ compensation rights during the onboarding process. Skip the required coverage and face penalties, fines, and stop-work orders. The consequences aren’t theoretical. They’re real, expensive, and disruptive. Workers’ compensation isn’t just bureaucratic red tape. It’s protection—for your employees and your business.

Frequently Asked Questions

What Penalties Apply if I Don’t Have Workers’ Compensation Insurance When Required?

Penalties escalate fast.

Employers face up to $2,000 for every 10-day period without coverage—capped at twice the payroll cost during non-compliance.

Miss coverage for five or fewer employees?

That’s a misdemeanor with fines up to $5,000.

More than five employees?

Class E felony territory, potentially $50,000 and four years in prison.

There’s also an automatic $12,000 hit for extended lapses.

Corporate officers can be held personally liable.

Oh, and if someone gets hurt?

The employer pays all medical expenses and lost wages out of pocket.

Can Independent Contractors File Workers’ Compensation Claims Against My Business?

Generally, no. Independent contractors can’t file workers’ comp claims against hiring businesses because they’re not employees. That’s the default rule.

But—and here’s where it gets messy—if a contractor gets hurt and doesn’t have their own coverage, the hiring company might still get stuck with liability. Some states like Louisiana and Florida actually require businesses to cover contractors in construction.

Plus, misclassifying an employee as a contractor? That creates a whole different legal nightmare.

Does Workers’ Compensation Insurance Cover Employees Who Work Remotely From Home?

Yes, workers’ comp covers remote employees just like office workers.

Pretty much every state requires it when you have employees, regardless of where they’re sitting.

The key factor? Whether the injury happened during work hours and relates to job duties.

That carpal tunnel from typing all day? Covered.

Tripping over the family dog during lunch? Nope.

Location doesn’t matter—the work connection does.

Employers need policies covering all states where remote workers are located, which sometimes means juggling multiple policies.

How Are Workers’ Compensation Insurance Premiums Calculated for My Business?

Workers’ comp premiums get calculated through a straightforward formula: payroll divided by 100, multiplied by the classification rate, then multiplied by the experience modification factor.

Payroll size matters—more employees and higher wages mean bigger premiums. Job classifications carry different rates based on risk levels.

The experience mod reflects claims history over three years. Fewer workplace injuries? Lower premiums. Multiple claims? Expect that modification factor to climb, dragging premiums up with it.

Can Employees Sue My Business Even With Workers’ Compensation Coverage?

Generally, no. Workers’ comp acts as a shield—employees get benefits, employers dodge lawsuits. It’s the trade-off.

But there are exceptions. Intentional harm? That’s fair game. Gross negligence beyond normal workplace risks? Possibly. No insurance coverage when required? Lawsuit city.

Third parties involved in the injury? They can get sued. Employees can also go after insurers for bad faith—denying or delaying claims unreasonably.