Workers' Compensation Insurance
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Workers' Compensation Insurance

What Is It?

Workers' Compensation Insurance can pay for three things when an employee is injured at work: medical bills, recovery costs, and partial missed wages. If an employee dies, Workers' Comp can cover funeral costs and benefits to the worker's family. Depending on state laws and contract requirements, you may need this policy to cover employees, contractors, freelancers, or even yourself.

Workers' Comp (formerly "workman's comp") emerged from a "grand bargain" between business owners and workers. Business owners were tired of being sued by injured workers. Workers were tired of being injured.

So Workers' Comp Insurance was designed to help pay for work injuries and illnesses without the rigmarole of a lawsuit. This liability insurance policy can help your business do three things:

  1. Pay for medical expenses and replacement wages when employees are injured at work.
  2. Comply with state Workers' Comp laws.
  3. Pay for legal expenses if an employee sues over a work injury the policy doesn't cover.

Most states require employers to buy Workers' Compensation Insurance as soon as they hire their first employee. Even when that's not the case, it's smart to have this policy, because the cost of workplace injuries is substantial:

The takeaway: workman's comp injuries cost small businesses in lost productivity. Without insurance, those costs would be compounded by employee medical expenses and missed wages.

Work injury claims cost $36,551 on average.

3 Ways Workers' Comp Insurance Protects Your Business

Employee Work Illness & Injury Expenses

Workers' Comp can help pay for medical expenses and missed wages for employees who are hurt on the job. If an employee dies, the policy can cover funeral expenses. 


State Law Compliance

Most states require employers to carry Workman's Compensation Insurance as soon as they hire their first employee.


Employee Injury Lawsuits

If your employee suffers an occupational injury your state doesn't require Workers' Comp Insurance to cover, the employee may sue you to recoup medical expenses. 

Industries with the Most Severe Workers' Comp Incidents in 2014*

Industry Days Away From Work
Healthcare and Social Assistance 164,440
Manufacturing 125,990
Retail 120,640
* Data courtesy of the Bureau of Labor Statistics [PDF]

Workers' Comp Insurance: Coverage for Employee Work Injuries & Illnesses

The most common Workman's Comp Insurance claim is for an injury that can happen anywhere: falls on the same level. Fully 17 percent of workplace accidents are caused by same-level falls, according to a 2014 Bureau of Labor Statistics report [PDF]. One trip over a computer cord, and you could be facing a pile of employee medical bills. (True story: OSHA lists "trip over self" as a category of workplace injury.) But it's not just accidents. Sometimes an employee's job can hurt them even if they don't work in a high-risk industry.

Example: Your copywriter churns out articles all day, but constant typing gives her carpal tunnel syndrome. Because the injury is work-related, she can recoup her medical expenses from your business.

If you have a Workers' Comp policy, that's no big deal. The copywriter can make a claim to cover corticosteroid injections or corrective surgery and partial wages for the time she needs to recover.

Top 10 Most Common Non-Fatal Workplace Injuries*

Cause of Injury Percent of Total Injuries
Struck by object 24.5%
Falls on same level 17.0%
Overexertion in lifting and lowering 10.9%
Falls to lower level 5.4%
Transportation incidents 5.2%
Slip or trip without falls 4.1%
Exposure to harmful substances and environments 4.1%
Violence and other injuries from persons and animals 4.1%
Repetitive motion 2.7%
Fires and explosions 0.1%
* Data courtesy of the Bureau of Labor Statistics [PDF]

Monday is the most common day of the week for a Workers' Comp injury. Because of course it is.

Workers' Comp Quick Facts

You can turn your Workers' Comp policy to help pay for employees' work-related injury or illness expenses, including...

  • Medical bills.
  • Ongoing care (including medication and rehabilitation).
  • Missed wages (often partial) during recovery.
  • Funeral expenses for fatal incidents.
  • Death benefits to support the deceased's family.

But it can't pay for:

  • Injuries caused by intoxication or drugs.
  • Self-inflicted injuries.
  • Injuries from a fight the employee starts.
  • Injuries caused by horseplay or company policy violations.
  • Off-the-job injuries.
  • Injuries claimed after an employee is fired or laid off.
  • Independent contractor injuries.
  • Wages for a replacement worker.
  • OSHA fines.

Falls on the same level cause 17% of Workers' Comp claims.

Workers' Compensation Laws by State

Every state has different Workers' Compensation laws. Find out what your state requires of businesses like yours in our page dedicated to Workers' Compensation Insurance laws by state. We maintain an overview of each state's requirements, which vary most often by industry and number of employees.

Workman's Compensation Insurance: Coverage that Helps You Comply with State Laws

Forty-nine states currently require employers to carry some form of Workers' Comp Insurance. Here's the catch: every state has its own spin on those laws.

Some states require employers to carry coverage as soon as they hire their first employee (California and Illinois are examples). In other states, the mandate kicks in once you have a certain number of employees (for example, four in Florida and five in Tennessee).

Only Texas allows employers to opt out of carrying insurance altogether. However, Texas employers can still be sued over uncompensated work injuries.

To complicate matters more, four states only allow you to purchase coverage from state-run funds. These states are...

So what happens if you skip out on Worker Compensation Insurance when your state requires it? It depends on where you live, but generally, you face fines and even jail time for serious offenses.

Sample of State Penalties for Workers' Comp Noncompliance

State Penalty
California Up to $10,000 in fines and / or up to a year in jail (the state can also issue penalties of up to $100,000 against illegally uninsured employers).
Florida 2x the amount the employer would have paid in premium within the last two years.
Illinois Up to $500 for every day of noncompliance with a minimum fine of $10,000
New York Up to $50,000 in fines for employers with more than 5 employees.
Virginia $250 per day for each day of noncompliance, with a maximum penalty of $50,000.

IL employers face fines up to $500 per day for not carrying Workers' Comp.

Worker Compensation Insurance: Coverage for Employee Injury Lawsuits

According to the Bureau of Labor Statistics, there were 3 million non-fatal work injuries in 2014. What happens when Workers' Comp benefits don't cover one of those accidents?

Answer: businesses turn to Employer's Liability Insurance, the second part of a Workman's Comp policy. This coverage can help cover lawsuits over employee work injuries.

We know what you're thinking: Workers' Comp is supposed to help me not get sued. What gives?

Workers' Comp benefits only cover what the state requires them to cover. In some states, certain types of workplace injuries and illnesses may not be eligible for Workers' Comp benefits.

Furthermore, an employee could allege you were negligent – for example, say you asked him to change a lightbulb by climbing a ladder that bore a striking resemblance to the leaning tower of Pisa. In negligence cases, you can still be sued. Employer's Liability Insurance helps you out when employees sue to cover their medical bills for ineligible work injuries. It can help pay for your...

  • Legal defense fees.
  • Settlement or judgments.
  • Court costs.

Free eBook Download

Download the free eBook Taking Care of Business: The Small Business Guide to Workers' Compensation Insurance, a guide to making sure your employees are covered and your business is in compliance with state law.

US businesses had 3 million work injuries in 2014.

Who Needs Workers' Compensation Insurance?

  Small Businesses Contractors and Freelancers Construction Professionals
Who Requires It? State laws State laws Clients and some state laws
Why Do You Need It? Many states require you to carry coverage when you hire your first employee. You could face fines and other penalties for ignoring these rules. Some clients may require proof of Workers' Comp coverage to prove to their insurer you're not an employee. Some states require solo roofers and other construction contractors to carry coverage for themselves.
Note: This chart is not comprehensive. Ultimately, your Workman's Comp Insurance needs depend on where you operate. Generally, though, business owners are required to carry coverage when they hire their first full- or part-time employee.
Who Requires It?
State laws
Why Do You Need It?
Many states require you to carry coverage when you hire your first employee. You could face fines and other penalties for ignoring these rules.
Who Requires It?
State laws
Why Do You Need It?
Some clients may require proof of Workers' Comp coverage to prove to their insurer you're not an employee.
Who Requires It?
Clients and some state laws
Why Do You Need It?
Some states require solo roofers and other construction contractors to carry coverage for themselves.


How Much Does Workers' Compensation Insurance Cost?



per $100 in wages in CA



per $100 in wages in TX



per $100 in wages in IL



per $100 in wages in NY

Workers' Compensation Insurance rates vary from state to state. For example, per $100 in employee wages, rates range from $0.75 in Texas to $2.74 in Alaska. Behind those rates are a lot of variables. The cost of Workers' Compensation depends on:

  • Your state.
  • Your industry.
  • How many employees you have.
  • The type of work your employees do.
  • Your payroll.
  • Your claims history.

The National Safety Council notes [PDF] that the cost of medical expenses for occupational injuries was $198 billion in 2011. As we mentioned earlier, that same study found that the average work injury claim costs about $36,551.

Chances are, your Workers' Comp premium is a much better deal. For more cost details, see the Workers' Comp Insurance Quote Analysis in our business insurance cost analysis section.

Treating occupational injuries cost $198 billion in 2011.

Workers' Compensation Insurance: Further Reading

Workers' Compensation Insurance on the Insureon Blog