Is Workers’ Comp Required? | Workers' Comp 101 | Pie Insurance

If you own or are planning to own a small business, you’ve probably researched different small business insurance types. One of the most important types of insurance you should consider is workers’ compensation insurance (also called workers’ comp or workman’s compensation). You might ask, “Is it really so important? Do I actually need workers’ comp insurance?”

Do you only have a few employees? Do they work in low-risk jobs? A lot of small business owners believe they don’t need to carry workers’ compensation insurance if the answer is yes to either of these questions. That’s typically not the case, though.

If you have employees, then yes—you should have workers’ comp coverage. In fact, depending on where your business is located, it might even be mandated by law. If you don’t have the required workers’ comp coverage for your employees, you can potentially face fines, penalties, and even imprisonment in your state.

After all, it’s your job and responsibility to keep your employees safe at work. You can (and should!) adopt any number of safety measures to mitigate the risks your workers may face on the job. Still, you can’t remove risk altogether.

Workers’ compensation insurance helps protect your business and helps cover your employees in case an employee gets injured or becomes ill on the job. Workers’ comp can provide considerable financial relief for the affected worker at such times.

In this article, we’ll explore what workers’ comp insurance is and why it’s so important for a small business to carry.

What is workers’ compensation insurance?

Workers’ compensation insurance is an insurance program that offers benefits to employees who suffer job-related injuries or illnesses. Available in the US since 1949, it provides wage replacement and medical benefits to workers. It’s an important way that employers can help protect the people who work for them.

The workers’ comp insurance program is “no-fault,” meaning that it kicks in whether or not the injury is the fault of an employee, the employer, co-workers, or even customers.

Businesses are required to pay the premium of the insurance, and in exchange for the cost incurred, employees are limited in their ability to sue their employer for negligence. After all, while it’s your job as a business owner to create a safe working environment for your employees, accidents do happen. So, while workers’ comp helps protect employees in case of injuries, it can also protect employers from costly lawsuits.

What does workers’ compensation insurance cover?

As workers’ compensation is a state-regulated program, the laws in each state determine the coverage. So, the kinds of injuries and ailments covered, the evaluation of these issues, how medical care is to be delivered, and the amount and kinds of benefits the injured or ill employee may receive—are all dictated by the state.

Usually, workers’ compensation covers medical costs and lost wages for work-related injuries and illnesses. For example, a delivery driver injured in an accident while delivering your product would likely qualify for workers’ comp aid.

Workers’ comp also covers illnesses “related to employment,” as defined by the state. The rules for this vary depending on the state and type of industry of your business. A good example is lung disease. If an employee’s lung disease is scientifically linked to exposure to chemicals used in your business, it could be covered by your workers’ comp insurance.

Oftentimes, workers’ comp pays costs in addition to medical bills, too. Specific coverage varies by state and insurance policies, but generally, the following additional items are covered:

• Hospital and medical expenses for diagnosis and treatment of a work-related injury or illness
• Disability payments while the employee is unable to work (usually about two-thirds of the regular salary)
• At least a portion of the cost for rehabilitation for permanent injury
• Death benefits for the family of a worker killed on the job

Do I need workers’ comp insurance? 

To put it simply: probably. In most states, workers’ comp is mandatory. The laws require you hold these policies in order to eliminate the need for litigation. Employees who become ill or get injured on the job will be compensated for their medical expenses and time off due to their injuries. In return for the coverage, they forfeit the right to file lawsuits against your business.

In most US states, it’s mandatory for business owners to have a workers’ compensation insurance policy. However, even where it’s not required by law, there are several reasons why you may still want to buy workers’ comp for your business:

• The cost of the workers’ comp insurance premium might be a significant addition to your budget, but this cost is probably far less significant than paying for medical treatment if your employees are injured on the job.
• It is your responsibility to keep your employees safe on the job. But sometimes, you can’t prevent accidents—and that’s where workers’ comp insurance comes into play. If your employee is injured on the job, they can claim medical benefits and lost wages through the workers’ comp policy.
• Workers’ compensation also helps protect your small business. When a claim is made through the policy, the employee gives up the right to sue your business or file additional claims with respect to that specific injury or illness. This helps protect your business from tedious legal proceedings that can prove costly and also decrease your business’ productivity.

Where is workers’ compensation insurance required by law?

Every state has laws and penalties related to workers’ compensation insurance. In most states, it’s required as soon as you hire your first employee. Some states, on the other hand, don’t mandate coverage until you have two, three, four or more employees.

For example, in Alabama, you aren’t legally required to have workers’ comp if you have less than five employees. In Texas, business owners are not legally required to buy workers’ comp at all, even though it’s mandatory in every other state. Penalties for not carrying workers’ compensation insurance—when it is required—can range from fines to varying amounts of jail time, or both.

If you want specifics about your state’s workers’ compensation requirements, it’s best to go directly to the source: your state workers’ compensation board. To do that, simply follow your state’s link from the table below:

State	Department	Workers’ Compensation Entity
Alabama	Alabama Department of Labor	Workers’ Compensation Division
Alaska	Alaska Department of Labor and Workforce Development	Workers’ Compensation Division
Arizona	Industrial Commission of Arizona	Claims Division
Arkansas	Arkansas Department of Labor and Licensing	Workers’ Compensation Commission
California	State of California Department of Industrial Relations	Division of Workers Compensation
Colorado	Colorado Department of Labor and Employment	Division of Workers’ Compensation
Connecticut	State of Connecticut	Workers Compensation Commission
Delaware	State of Delaware Department of Labor	Division of Industrial Affairs Office of Workers’ Compensation
District of Columbia	D.C. Department of Employment Services	Labor Standards Bureau Office of Workers’ Compensation
Florida	Florida Department of Financial Services	Division of Workers’ Compensation
Georgia	State of Georgia	Georgia State Board of Workers’ Compensation
Guam	Guam Department of Labor	Workers’ Compensation Commission
Hawaii	Hawaii Department of Labor and Industrial Relations	Disability Compensation Division
Idaho	State of Idaho	Industrial Commission
Illinois	State of Illinois	Illinois Workers’ Compensation Commission
Indiana	State of Indiana	Workers’ Compensation Board of Indiana
Iowa	Iowa Workforce Development	Division of Workers’ Compensation
Kansas	Kansas Department of Labor	Division of Workers’ Compensation
Kentucky	Kentucky Labor Cabinet	Department of Workers’ Claims
Louisiana	Louisiana Workforce Commission	Office of Workers’ Compensation
Maine	State of Maine	Workers’ Compensation Board
Maryland	State of Maryland	Workers’ Compensation Commission
Massachusetts	State of Massachusetts	Department of Industrial Accidents
Michigan	Michigan Department of Labor and Economic Opportunity	Workers’ Disability Compensation Agency
Minnesota	Minnesota Department of Labor and Industry	Workers’ Compensation Division
Mississippi	State of Mississippi	Workers’ Compensation Commission
Missouri	Missouri Department of Labor and Industrial Relations	Division of Workers’ Compensation
Montana	Montana Department of Labor and Industry	Employment Relations Division Workers’ Compensation Claims Assistance Bureau
Nebraska	State of Nebraska	Workers’ Compensation Court
Nevada	Nevada Department of Business and Industry	Division of Industrial Relations
New Hampshire	New Hampshire Department of Labor	Workers’ Compensation Division
New Jersey	New Jersey Department of Labor and Workforce Development	Division of Workers’ Compensation
New Mexico	State of New Mexico	Workers’ Compensation Administration
New York	State of New York	Workers’ Compensation Board
North Carolina	State of North Carolina	Industrial Commission
North Dakota	State of North Dakota	Workforce Safety and Insurance
Ohio	State of Ohio	Bureau of Workers’ Compensation
Oklahoma	State of Oklahoma	Workers’ Compensation Commission
Oregon	State of Oregon	Workers’ Compensation Division
Pennsylvania	Pennsylvania Department of Labor and Industry	Bureau of Workers’ Compensation
Puerto Rico	Government of Puerto Rico	Industrial Commission
Rhode Island	Rhode Island Department of Labor and Training	Division of Workers’ Compensation
South Carolina	State of South Carolina	Workers’ Compensation Commission
South Dakota	South Dakota Department of Labor and Regulation	Division of Labor & Management
Tennessee	Tennessee Department of Labor and Workforce Development	Division of Workers’ Compensation
Texas	Texas Department of Insurance	Division of Workers’ Compensation
Utah	Utah Labor Commission	Division of Industrial Accidents
Vermont	Vermont Department of Labor	Workers’ Compensation Division
Virginia	State of Virginia	Workers’ Compensation Commission
Virgin Islands	Virgin Island Department of Labor	Workers’ Compensation Administration
Washington	Washington Department of Labor and Industries	Insurance Services Division
West Virginia	State of West Virginia	Office of the Insurance Commission
Wisconsin	Wisconsin Department of Workforce Development	Workers’ Compensation Division
Wyoming	Wyoming Department of Workforce Services	Workers’ Compensation Division

Do self-employed business owners need workers’ compensation insurance? 

If you’re a self-employed professional, you might have thought to yourself, “Do I need workers’ comp insurance if I have no employees?”

If you have no employees, you’re typically not mandated by state law to buy workers’ compensation insurance. That said, it’s still wise to have the coverage—even if only for yourself. Although avoiding workers’ compensation premiums might save you money in the short term, it can cost you heavily if you end up with a work-related injury or illness—and find yourself out of work because of it. Additionally, sometimes a contract or agreement with another business may require you to purchase workers’ comp for yourself.

In any case, if your job is prone to risks or accidents, you’d be better off getting workers’ comp coverage—even if you don’t have employees.

In summary

If you have employees, depending on how many employees you have and which state you operate in, your business is probably mandated by law to carry workers’ comp. However, even if your state doesn’t mandate coverage, it’s usually in your best interest to invest in a workers’ comp policy because it’s likely to save you money in the long run.

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Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation or check your current rate in 3 minutes.