When do I need to buy workers' compensation insurance?

Editorial headshot of Mike Mosser
Workers' compensation not only protects your business from financial loss, but it is also required by law in most states if you have employees.
A construction worker standing on a roof.

Workers' compensation insurance provides valuable protection for you and your employees. It ensures that injured workers receive lost wages and the care they need regardless of fault. In return, employers are protected from costly employee lawsuits over on-the-job injuries. That’s why workers’ comp coverage is required by law in most states if you have employees.

Whether you’re a well-established business or just starting out, it’s crucial that you understand when to buy workers’ compensation insurance.

In most states, you need to buy workers’ compensation insurance as soon as you hire your first employee. Not only is it probably the law, it’s also crucial that you have coverage in place as soon as possible. Even if you are a sole proprietor of your business, you may be required to have workers’ comp. For instance, you might need it to get a contractor license depending on what state you work in.

Without it, you’ll have to pay out-of-pocket for the costs, because your health insurance won’t cover medical bills associated with an employee’s work-related injury or illness.

Failure to comply with state workers' compensation laws could also result in civil or criminal penalties.

How the location of your business affects whether you’re required to carry workers’ comp insurance

Every state’s workers’ compensation laws are different. You’ll need to become familiar with the workers’ comp laws of the states in which your business operates. For example, if your company is headquartered in one state but employs people in another, you will likely need to buy coverage based on the laws of each state where your employees are working.

The number of employees you have will also impact when you need to buy workers’ comp insurance. In some states, any business with an employee is required to carry workers’ comp. In others, the requirement might be two, three, or five employees. Even if your employees are corporate officers or family members, they’ll likely need to be covered under your workers’ comp policy.

Just as each state has its own regulations regarding when employers must carry workers’ compensation coverage, workers’ comp insurance requirements and exemptions also vary.

For example, some states require any person employed in the construction or roofing industries to be covered.

Other common questions regarding state’s workers’ comp requirements include:

Do independent contractors need workers’ comp coverage?

If you’re self-employed or a sole proprietor and don’t have employees, you’re generally not required to purchase workers’ compensation for yourself. However, some businesses do require the independent contractors they work with to carry workers’ comp insurance to reduce their own liability.

Even if not required by law or contracts, it may still be a good idea to obtain workers’ compensation coverage for yourself to cover your medical bills and lost wages if you’re injured while working.

Do you need workers’ comp coverage for part-time employees?

If workers’ comp is required for full-time employees in your state, you can expect that it’s required for part-time and seasonal employees as well.

Do you need to buy workers’ comp for subcontractors?

You might be required to buy workers’ comp insurance for subcontractors, depending on how your state determines who is an employee. Your state might also require you to provide this coverage even if your subcontractors already have their own workers’ comp insurance policy.

Should you buy workers’ comp insurance even if it’s not required?

Whether or not it’s required by law, there are several reasons why buying workers’ comp insurance might be in your best interests. Although you will need to factor workers’ comp insurance cost into your budget, odds are that the cost of the insurance premium is far less than the medical expenses you’ll pay if you or your employee is injured on the job.

When you purchase workers’ compensation insurance, you’re protecting both your employees and your business. Injured employees can claim benefits through workers’ compensation and receive financial assistance for medical treatment, ongoing therapies, and lost wages. If an employee is fatally injured on the job, workers’ compensation will provide death benefits to their dependents and some portion of burial expenses.

Workers’ compensation benefits business owners by limiting exposure to lawsuits. Most workers’ comp policies include employer's liability insurance, which protects you if an employee claims your negligence caused their injury.

Once a workers’ comp claim is settled, the employee can no longer bring additional claims or litigation related to that specific injury or illness. That means you’re protected from further legal action that could cost you time and money.

Protect your business with workers' compensation insurance

What if you don’t buy workers’ compensation insurance?

In most states, failure to carry the required workers’ comp insurance could subject you to administrative penalties, such as fines or stop-work orders. However, some states also impose criminal penalties, and you could face misdemeanor or felony charges, and even jail time.

If your employee is injured when you don’t have the required workers’ comp coverage in place, you would be responsible for the cost of any medical treatments, lost wages, and other benefits that your workers’ comp policy would have paid.

The average cost of a workers’ comp claim is $42,000, according to the National Safety Council. By comparison, paying for a workers’ compensation policy is probably a much better deal for your business. That’s why small business owners may purchase it even when it’s not required by law.

How much does workers’ comp insurance cost?

Your insurer will base the cost of a workers’ comp policy on where you’re located, your industry, how many employees you have, and your claims history.

The greater the risk in your industry, the more your insurance company will charge in workers’ comp premiums. Insureon customers pay an average premium of $45 per month, or $542 annually, for workers’ comp coverage.

If you’re unsure what your industry risks are, you can speak with an insurance agent who specializes in helping small business owners in your industry find the best business insurance for their budget.

Calculating workers' comp costs

A small business owner calculating their workers' comp insurance payments

Workers’ compensation insurance costs an average of $45 per month. 23% of Insureon's small business customers pay less than $30 per month for this policy.

Your cost is based on a number of factors, including:

  • Payroll
  • Location
  • Number of employees
  • Industry and risk factors
  • Coverage limits
  • Claims history
View Costs

How do you begin the process of buying workers’ compensation insurance?

Insureon helps business owners compare workers’ compensation quotes from leading insurance carriers, based on the size of their business, their industry, and other factors. Start a free online quote today from top-rated U.S. carriers. Once you find the right  policy for your small business, you can begin coverage in less than 24 hours.

Mike Mosser, Content Specialist

Mike spent several years as a reporter and editor covering politics, crime, and the world financial markets. He’s worked for several newspapers, a financial newswire, and a monthly magazine. As a copywriter, Mike has produced SEO-based content, marketing, public relations, and advertising work for a variety of companies.

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