Who Needs Workers' Comp Insurance?
Workers' compensation insurance is required by law in nearly every US state for businesses that employ workers. The specific requirements for when coverage becomes mandatory vary by state, as shown in the table below.
| State | Coverage Required When | Exemptions | Type |
|---|---|---|---|
| California | 1+ employees | Sole proprietors (optional) | Private/State Fund |
| New York | 1+ employees | Sole proprietors, some partners | Private/State Fund |
| Texas | Optional (non-subscribers) | Private employers may opt out | Private |
| Florida | 4+ employees (non-construction) 1+ for construction | Sole proprietors, partners | Private |
| Illinois | 1+ employees | Sole proprietors | Private |
| Pennsylvania | 1+ employees | Some agricultural workers | Private/State Fund |
| Ohio | 1+ employees | None | Monopolistic State Fund |
| Georgia | 3+ employees | Farm labor, domestic servants | Private |
| Alabama | 5+ employees | Farm labor, domestic servants | Private |
| North Dakota | 1+ employees | None | Monopolistic State Fund |
| Washington | 1+ employees | None | Monopolistic State Fund |
| Wyoming | 1+ employees | None | Monopolistic State Fund |
Texas: The Exception
Texas is the only state where private employers are not required to carry workers' comp insurance. Employers who opt out (called "non-subscribers") lose certain legal protections and can be sued by injured employees for workplace injuries. Despite this, approximately 20-25% of Texas employers choose not to carry workers' comp. Non-subscribers must still report workplace injuries and may face significant liability exposure.
Workers' Comp Insurance Cost Factors
Understanding what drives your workers' comp premium helps you make informed decisions about coverage and identify opportunities to reduce costs.
Primary Cost Factors
- Industry classification code: The biggest factor. High-risk industries (construction, logging, mining) pay dramatically more than low-risk industries (technology, finance, clerical).
- Total payroll: Premiums are calculated per $100 of payroll. More employees and higher wages mean higher premiums.
- Experience Modification Rate (EMR): Your company's claims history compared to similar businesses. An EMR above 1.0 increases your premium; below 1.0 decreases it.
- State: Workers' comp costs vary significantly by state due to different benefit levels, medical costs, and regulatory frameworks.
- Claims history: Even beyond the EMR, insurers consider your company's loss run (detailed claims history) when pricing coverage.
- Insurance carrier: Different insurers offer different rates and programs. Shopping multiple carriers can yield savings of 10-30%.
Average Costs by Business Type
| Business Type | Avg. Rate/$100 | Cost for $200K Payroll | Cost for $500K Payroll |
|---|---|---|---|
| Software/IT Company | $0.20 | $400 | $1,000 |
| Accounting Firm | $0.16 | $320 | $800 |
| Retail Store | $0.92 | $1,840 | $4,600 |
| Restaurant | $2.18 | $4,360 | $10,900 |
| Landscaping | $4.52 | $9,040 | $22,600 |
| Plumbing | $3.92 | $7,840 | $19,600 |
| Electrical Contractor | $4.68 | $9,360 | $23,400 |
| General Construction | $7.84 | $15,680 | $39,200 |
| Roofing Contractor | $14.22 | $28,440 | $71,100 |
| Nursing Home | $3.86 | $7,720 | $19,300 |
How to Get Workers' Comp Insurance
There are several pathways to obtaining workers' comp coverage, depending on your state, business size, and risk profile.
Private Insurance Market
Most employers purchase workers' comp from private insurance companies through licensed insurance agents or brokers. The process involves:
- Contact an insurance agent or broker (preferably one who specializes in workers' comp or commercial insurance)
- Provide your business details: payroll by employee classification, years in business, claims history (loss runs from prior carriers)
- Receive quotes from one or more carriers
- Select a policy and pay the estimated premium (usually with monthly or quarterly payment options)
- Undergo a premium audit at the end of the policy term to reconcile estimated vs. actual payroll
State Funds
Many states operate a state workers' comp insurance fund that competes with private insurers. State funds are often the insurer of last resort for high-risk businesses that cannot find coverage in the private market. In four monopolistic states (Ohio, North Dakota, Washington, Wyoming), the state fund is the only option — private insurance is not available.
Self-Insurance
Large employers with strong financial positions may qualify to self-insure their workers' comp obligations. Self-insurance means the employer pays claims directly rather than purchasing an insurance policy. Requirements typically include demonstrated financial stability, a minimum level of net worth or assets, posting a security deposit or bond, and approval from the state workers' comp agency. Self-insurance can reduce costs for large, safety-conscious employers but carries significant risk.
Professional Employer Organizations (PEOs)
Small businesses can access workers' comp coverage through a PEO, which co-employs your workers and provides HR services including workers' comp insurance. PEOs pool many small businesses together, potentially offering better rates and broader coverage options than a small business could obtain independently.
Assigned Risk Pool
If your business cannot obtain coverage in the voluntary market (due to high risk, poor claims history, or other factors), your state's assigned risk pool (also called the residual market) provides guaranteed coverage. Assigned risk policies are typically more expensive than voluntary market policies but ensure that all employers can obtain the legally required coverage.
Top Workers' Comp Insurance Companies
The workers' comp insurance market includes hundreds of carriers, but a handful of companies write the majority of premium volume nationally. Here are some of the largest and most well-known workers' comp insurers.
| Insurer | Market Focus | Key Strengths |
|---|---|---|
| The Hartford | Small to mid-size businesses | Bundled BOP+WC; strong online tools; pay-as-you-go billing |
| Travelers | All business sizes | Largest commercial insurer; broad industry expertise; strong claims management |
| EMPLOYERS Holdings | Small businesses | Workers' comp specialist; competitive rates for low-to-moderate risk |
| AmTrust Financial | Small businesses | Specializes in small business WC; many class codes accepted |
| Berkshire Hathaway Guard | Small to mid-size | Competitive pricing; strong financial backing |
| Liberty Mutual | Mid-size to large | Comprehensive risk management services; global presence |
| Zurich | Large accounts | Sophisticated risk engineering; multinational capabilities |
| State Compensation Insurance Fund (CA) | California employers | California's insurer of last resort; competitive for high-risk industries |
| NEXT Insurance | Small businesses | Digital-first; instant online quotes; pay-as-you-go |
| biBERK (Berkshire Hathaway) | Small businesses | Direct-to-business; no broker needed; competitive online quotes |
When selecting a workers' comp insurer, consider not just the premium price but also the carrier's financial strength rating (A.M. Best), claims handling reputation, loss control services, return-to-work program support, and payment flexibility. A broker who specializes in workers' comp can help you evaluate these factors and negotiate the best terms.
Related Calculators and Resources
Use our other free tools and guides to better understand your workers' compensation benefits:
Frequently Asked Questions
Answers to the most common questions about this topic.
Workers' comp insurance costs vary widely based on your state, industry, payroll size, and claims history. The national average is approximately $1.00 to $1.50 per $100 of payroll, but this ranges from as low as $0.12 per $100 for low-risk clerical work to over $14 per $100 for high-risk occupations like roofing. A small business with $200,000 in annual payroll in a moderate-risk industry might pay $2,000 to $4,000 per year. Use our calculator at the top of this page for a more specific estimate.
Workers' comp insurance is required in almost every state for businesses that have employees. The specific requirements vary: most states require coverage once you hire your first employee, while others set thresholds (e.g., 3 or more employees in Alabama, 4 or more in Georgia, 5 or more in some states). Texas is the only state where private employers can opt out entirely. Failure to carry required workers' comp insurance can result in fines, criminal penalties, and personal liability for workplace injuries.
Workers' comp insurance covers four main areas: (1) Medical expenses for work-related injuries and illnesses, including hospital stays, surgeries, prescriptions, and rehabilitation; (2) Lost wages (temporary disability benefits) while the worker is recovering; (3) Permanent disability benefits for lasting impairment; and (4) Death benefits and burial costs for workers killed on the job. It also covers the employer's legal costs if a claim is disputed. Workers' comp does not cover injuries from employee intoxication, self-inflicted harm, or horseplay.
You can purchase workers' comp insurance from: (1) Private insurance companies through an agent or broker; (2) Your state's workers' comp insurance fund (available in many states); (3) Through a Professional Employer Organization (PEO) if you use one; or (4) By self-insuring if you meet your state's financial requirements. In monopolistic states (Ohio, North Dakota, Washington, Wyoming), you must purchase from the state fund. For the best rates, work with a broker who specializes in workers' comp and can compare quotes from multiple carriers.
Penalties for operating without required workers' comp insurance are severe and vary by state. Common penalties include: fines ranging from $1,000 to $100,000 or more; criminal charges (misdemeanor or felony depending on the state); stop-work orders that shut down your business; personal liability for all medical costs and disability payments for any injured employee; and being barred from bidding on government contracts. In California, operating without insurance is a criminal offense punishable by up to one year in jail and fines up to $100,000.
If you are a sole proprietor or single-member LLC with no employees, most states do not require you to carry workers' comp insurance. However, you may choose to purchase coverage voluntarily to protect yourself from the financial impact of a work injury. Additionally, some states allow sole proprietors to opt into coverage. If you hire subcontractors, be aware that you may be required to ensure they have their own coverage, or they may be treated as your employees for workers' comp purposes.
Workers' comp insurance covers employee injuries and illnesses that occur during the course of employment, regardless of fault. General liability insurance covers third-party claims (customers, visitors, the public) for bodily injury, property damage, and personal injury caused by your business operations. They protect different parties: workers' comp protects your employees, while general liability protects against claims from non-employees. Most businesses need both types of coverage.
Remote employees are generally covered by workers' comp for injuries that occur while performing work duties in their home office or other remote location. The key requirement is that the injury must arise out of and in the course of employment. For example, tripping over a cord while walking to a home office desk during work hours would likely be covered. However, injuries from personal activities during work breaks may not be covered. Employers should establish clear remote work policies and ensure their workers' comp policy covers remote workers.