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When is Workers’ Compensation Insurance Required?

man with leg in cast sitting by

Workers’ compensation insurance protects you and your employees. Injured workers have peace of mind knowing that they won’t have to cover their medical costs out-of-pocket and will receive compensation for lost wages.

As an employer, a comprehensive workers’ compensation insurance policy means you don’t need to pay for these benefits out of your own pocket. With $42.6 million in net premiums from workers’ compensation, there is a reason why this coverage is required by law in most states.

Here’s what you need to know about workers’ compensation and when you should have it.

Do You Need Workers’ Compensation Insurance?

Most states mandate that you purchase workers’ compensation insurance the moment you make your first hire. So, as a rule, if you have employees, you should have this coverage, or you can face various civil penalties. You can purchase workmans comp insurance on this site for workmans comp insurance

There are other cases when you may also need this type of insurance. For example, some states mandate that even sole proprietors must have workers’ comp if they want to obtain a contractor license.

Regardless of the law, without this coverage, all costs associated with medical bills, legal fees, and other expenses will need to be paid directly from the business. So, for this reason alone, it makes sense to factor the workers’ compensation insurance cost into your annual expenses now.

Beware of Differences in State Laws

Every state is free to set its own regulations regarding workers’ comp. However, where you live will impact which regulations you are required to follow.

Matters become even more complex if you are headquartered in one state but do business in another state. In these circumstances, you will need to purchase coverage that complies with the laws of each state where you have workers on the ground.

How many employees you have will also impact how much workers’ comp coverage you require. Some states mandate that any business with an employee must have a valid workers’ compensation policy. However, others only require coverage if you have more than a certain number of employees.

These rules apply even if your employees are also corporate officers, such as friends and family members.

Make yourself aware of your state’s workers’ comp laws to ensure you are compliant. Unfortunately, several quirks can make this issue a complicated one. For example, some states require any person in the roofing or construction industries to be covered, even if they’re a one-man operation.

Workers’ Compensation and Independent Contractors

Sole proprietors and the self-employed are usually free of the requirements to purchase workers’ compensation insurance for themselves. However, businesses may still require independent contractors to have a valid policy to reduce the risk on their side.

Even if you are not required by your state’s laws to take out a workers’ compensation policy, it can still be a good idea.

Independent contractors holding workers’ comp coverage can avail themselves of the same benefits as employees, including lost wage replacement and medical bill coverage.

Depending on your state, subcontractors may or may not require workers’ comp coverage. But, it all depends on how your state defines who counts as an employee. Generally, while part-time and seasonal employees would count as employees, the issue over subcontractors is far murkier.

Some states make things even more complicated by requiring you to take out workers’ compensation insurance for subcontractors even if the subcontractor already has their own policy.

Should I Buy Workers’ Comp if Not Required?

Many entrepreneurs decide whether they are required by law to hold a valid workers’ compensation insurance policy. However, even if you are not required to by law, there were 2.8 million nonfatal workplace injuries in 2020. These high numbers mean several good reasons you should always hold this type of coverage.

The cost of the premiums will undoubtedly be far lower than covering the costs of your own or an employee’s medical bills. As healthcare costs spiral, workers’ comp is a must-have, even for one-man operations.

Purchasing workers’ comp protects not just your employees but your business. Anyone injured can claim benefits through your policy and receive the financial assistance they need while they recover.

Workers’ comp also provides death benefits to tragically killed employees on the job and may even cover burial expenses.

Finally, workers’ compensation insurance reduces your personal exposure to lawsuits. Most policies will also include employers’ liability insurance, which protects you from claims of negligence made against you.

After a workers’ compensation case has been settled, employees are prohibited from bringing additional litigation relating to the same incident, injury, or illness. Settling through your insurance guarantees permanent protection against any further legal action.

In short, workers’ compensation coverage saves you time, money, and significant stress.

Consequences of Not Buying Workers’ Compensation Insurance

Most states will levy administrative penalties on employers that fail to carry this type of coverage. These could range from fines to stop-work orders.

Some states are stricter than others regarding enforcement and the severity of any penalties. These penalties include but are not limited to criminal penalties (both misdemeanor and felony) and jail time.

There are also significant penalties for not having coverage and someone being injured on the job. You will be forced to pay for medical treatment, lost wages, and other policies directly from your own pocket.

According to the National Safety Council, the average workers’ comp claim is worth $40,000. Do you have that sort of money available to confront a claim?

If not, the premiums of a workers’ comp policy are more than worth avoiding these enormous litigation costs.


No type of coverage causes more headaches for employers than workers’ compensation. Due to how much laws vary between states, it’s not always clear whether you need this coverage. However, business experts recommend taking it out anyway because it applies to you as much as it does to people working for you.

Make sure you speak to an employment attorney who understands the regulations in your locality. Ensure your compliance and get peace of mind knowing that your team and your business are protected.

Have you taken out a workers’ compensation policy?

3 thoughts on “When is Workers’ Compensation Insurance Required?

  1. Definitely when you have an old work crew. Older workers get hurt more then young people.

  2. NJ milks those of us with small corporations. No other state requires a premium paid for officers vs employees.

  3. Premiums are beyond ridiculous. We actually reformed our business from a Corporation to an LLC simply to avoid the premiums and the unbearable yearly ‘audits’. So glad to have done so.

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