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.

 

 


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.

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