Workers’ compensation insurance is something many people have heard of but don’t fully understand until they’re required to deal with it. If you run a business or plan to hire workers, you need to know whether you are legally required to carry workers’ comp. This type of insurance is not only about following the law—it’s about protecting both employers and employees when injuries happen at work.
Who has to carry workers’ comp insurance? Let’s break this down in a simple way. This article will help you understand who needs to carry workers’ compensation, why it matters, and what happens if you don’t follow the rules. We’ll also look at the different laws in different states, exceptions to the rules, and how to figure out if your business needs coverage.
What Is Workers’ Compensation?
Before we go any further, it’s important to understand what workers’ comp actually is. Workers’ compensation insurance provides benefits to employees who get injured or become ill because of their job. These benefits usually cover medical bills, lost wages, and rehabilitation costs. In some cases, they may also provide death benefits to the worker’s family.
In return, workers usually give up the right to sue their employer. This is known as a “no-fault” system. It protects both the employee and the employer. The employee gets help quickly, and the employer avoids costly lawsuits.
Who Is Legally Required to Carry Workers’ Comp?
In general, most businesses with employees are required to carry workers’ compensation insurance. However, the details depend on the state. Each U.S. state has its own rules, and those rules decide:
How many employees you need before coverage is required
What type of work your employees do
Whether or not you can exclude family members or business owners
Let’s look at some common situations that affect who must carry this insurance.
1. Employers With One or More Employees
In many states, as soon as you hire your first employee, you are required to carry workers’ compensation insurance. It doesn’t matter if the employee is full-time or part-time. States like California, New York, and Illinois require almost every business with even one employee to carry coverage.
Other states may allow a little more flexibility. For example, in Georgia and North Carolina, you might not be required to carry workers’ comp until you have three or more employees. In Florida, the rule varies by industry—for example, construction companies must carry coverage with just one employee, while other businesses may wait until they have four.
2. Independent Contractors and Freelancers
Many businesses work with independent contractors or freelancers. Generally, these workers are not considered employees, so employers are not required to provide workers’ compensation for them. However, this can be tricky. Some states have strict rules for determining whether a worker is truly an independent contractor.
If a worker is misclassified as a contractor when they are really an employee, the employer can face fines, penalties, and lawsuits. That’s why it’s important to understand your state’s definition of “employee” and “contractor.”
In some industries, like construction or trucking, independent contractors may be required to carry their own workers’ comp policies to protect themselves and to qualify for jobs.
3. Sole Proprietors and Business Owners
If you are a sole proprietor and don’t have any employees, you are generally not required to carry workers’ compensation. But that doesn’t mean you shouldn’t consider it. Even though it’s not required, having a policy can protect you in case you get hurt while working.
Some business owners also choose to include themselves in their workers’ comp policy. This gives them the same medical and wage-loss protection that regular employees get.
In corporations, company officers can sometimes choose to exclude themselves from coverage. But again, this depends on the state and industry.
4. Family Members and Volunteers
If your business hires family members—such as your spouse, children, or siblings—whether or not you must cover them under workers’ comp depends on your state. Some states automatically exclude family members from coverage. Others include them unless you formally opt out.
Volunteers are generally not covered, unless your state requires it or you choose to include them in your policy. For example, some nonprofit organizations choose to cover volunteers just to be safe.
5. Agricultural and Domestic Workers
Certain workers may be excluded from workers’ comp rules in some states. Two common examples are agricultural workers and domestic workers.
Agricultural workers often work in seasonal jobs on farms. In some states, employers in agriculture are not required to carry coverage. In others, they are only required if they have a certain number of workers.
Domestic workers are people who work in homes—such as housekeepers, nannies, or caregivers. Many states do not require homeowners to carry workers’ comp for these workers, especially if they only work part-time.
Why Do States Have Different Rules?
Workers’ compensation laws are not set by the federal government. Each state makes its own laws. That’s why the rules can be so different across the country.
States try to balance the needs of workers with the cost to employers. In some states, the laws are stricter to make sure that almost every worker is protected. In others, the laws are more relaxed to reduce the cost to small businesses.
Some states, like Texas, don’t require most private employers to carry workers’ comp at all. But even in states where it’s optional, not having coverage can be risky. If an employee gets hurt and you don’t have insurance, you may have to pay out of pocket for their medical costs and legal fees.
What Happens If You Don’t Have Workers’ Comp?
If your state requires you to have workers’ comp and you don’t carry it, you could face serious consequences. These may include:
Fines and penalties from your state’s labor department
Lawsuits from injured employees
Criminal charges in extreme cases
Business shutdowns or license suspensions
On top of legal trouble, your business could suffer financially. Just one injury could cost thousands of dollars in medical bills and lost wages. Without insurance, you might have to pay everything yourself.
How Do You Know If You Need Workers’ Comp?
The best way to find out if you’re required to carry workers’ comp is to check with your state’s workers’ compensation board or labor department. You can also talk to an insurance agent who understands your state’s rules.
When you’re checking, be sure to gather details about:
How many employees you have
What kind of work they do
Whether they’re full-time, part-time, or contractors
Whether you have any family members or volunteers helping out
Your state may also ask about your payroll and your industry. These details can affect your requirements.
Is It Ever a Good Idea to Carry Workers’ Comp Even If It’s Not Required?
Yes. Even if the law doesn’t make you carry workers’ comp, it might still be smart to get it. Injuries can happen in any job, even ones that seem low-risk. If you’re a sole proprietor or a small business owner, a single injury could put you out of work for weeks or months.
With workers’ comp, you don’t have to worry about how you’ll pay your bills or cover your medical costs if something happens.
Having a policy also shows your employees and clients that you’re responsible. It builds trust and can make it easier to grow your business. In some industries, clients may even require you to carry insurance before they’ll sign a contract with you.
Conclusion
Workers’ compensation insurance is a key part of running a safe and legal business. If you have employees, there’s a good chance you’re required to carry it. But the rules vary by state, and it’s your job to find out what applies to you.
Don’t wait until someone gets hurt to learn the law. If you’re not sure whether you need coverage, ask a trusted insurance professional or check your state’s official website.
In most cases, it’s better to be safe than sorry. Carrying workers’ comp protects your employees, your business, and your peace of mind.
Related topic:
Who Pays for My Health Insurance While on Workers’ Compensation?
