Workers' Compensation Insurance Requirements

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Workers' comp is required for most businesses in every U.S. state except Texas. 

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Many states require you to purchase comp after hiring your first employee. Since each state has different insurance requirements and penalties, you'll want to check the workers' compensation law in your state before purchasing coverage. 

Workers' Compensation Insurance By State

Workers' comp is regulated on a state level and generally required based on your number of employees. 

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For example, North Carolina requires most businesses with three or more workers to carry coverage, whereas California requires you to purchase coverage as soon as you hire your first part or full-time employee.

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Many states have exemptions for certain businesses and workers, including:

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• Sole proprietorships
• Limited liability companies (LLC) 
• Independent contractors
• Federal employees
• Domestic workers
• Farm laborers
• Casual employees, such as family members

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However, there are some state laws that require workers' compensation coverage even for sole proprietorships and LLCs, so it's best to check before you decide whether or not to purchase coverage.

Workers' Comp Penalties

In states where it's required, companies can face severe penalties—including fines and jail time—for not carrying workers' compensation insurance coverage. Some of the states with the heaviest penalties include:

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• Pennsylvania: $15,000 in fines and up to seven years in jail
• California: $10,000 to $100,000 in fines and up to one year in jail
• New Jersey: $5,000 for every 10 days without coverage and up to 18 months in jail
• Michigan: $1,000 in fines or 30 days to six months of jail time
• New York: $1,000 to $50,000 in fines, plus another $2,000 per 10 days without coverage
• Illinois: $500 per day in fines, with a minimum of $10,000

How to Purchase Workers' Comp

Most states allow you to purchase workers' comp either from a state fund or a private insurance company. But there are four states that require businesses to purchase from the state fund:

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• North Dakota
• Ohio
• Washington
• Wyoming

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These are known as monopolistic states. There's one important difference between regular workers' comp coverage and coverage purchased from a monopolistic state fund. Most workers' comp includes employer's liability insurance—which protects you from lawsuits claiming an employee was injured through your negligence as the employer. 

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By contrast, coverage purchased from a monopolistic state fund does not include this insurance. While it covers medical bills, lost wages, and disability benefits for workers, it does not protect you as the employer from potentially getting sued over a workplace injury or illness.

In this case, if you want to protect your business from employee lawsuits, you may need to buy a general liability policy (which usually includes employer's liability) from a private insurance carrier. This is known as stop-gap coverage.

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Some states, such as New York, allow self-insurance as an alternative to workers' comp. This means the employer uses their own money to pay for things that would generally be covered under a workers' compensation insurance policy, such as an injured employee's medical care. Self-insured employers must meet certain requirements and go through an application process.

FAQs 

What are the workers' comp requirements in California?

California requires all businesses with at least one part-time or full-time employee to carry workers' comp. Even if your business isn't located in California, you're still required to carry coverage if you have at least one employee that works in the state.

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And as of July 2023, workers' compensation insurance is required for certain licensed contractors in California. That's right, even if they don't have any employees. This includes those in concrete (C-8), HVAC (C-20), asbestos abatement (C-22), and tree service (D-49). In 2026, all contractors in the Golden State will be required to get workers' comp, even if they don't have any employees.

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California also requires employers to inform new hires about their workers' comp benefits and post the "Notice to Employees" in a prominent spot in the workplace.

Who is required to carry workers' comp in Texas?

Texas businesses are only required to carry workers' comp if they or their employees work as government contractors. Contractors may also require any subcontractors who work with them to carry workers' comp.

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While workers' comp isn't required for other Texas employers, it's still a good way to protect your business from lawsuits and ensure your employees will be able to pay for any medical care they need as a result of work-related injuries and illnesses.

Is workers' comp required in Illinois?

In Illinois, workers' comp is required for most businesses with at least one part-time or full-time employee. Companies that don't need to carry coverage include:

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• Sole proprietors
• LLC members
• Business partners
• Corporate officers

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However, these types of employees will still need to file an opt-out form with the state Division of Workers' Compensation.

What are the reasons for a workers' comp claim?

An employee may file a workers' comp claim if they're injured in the workplace or become ill due to workplace conditions. Examples include:

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• A break or fracture from a fall at work
• A strain from strenuous construction or manufacturing work
• A repetitive stress injury, such as carpal tunnel
• Illness from exposure to hazardous chemicals 

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Workers' comp covers the cost of medical treatment and lost wages for injured workers, as well as things like vocational rehabilitation, disability benefits, and death benefits paid to a worker's dependents. Most states require you to file a claim within a certain amount of time from the date of the injury or first symptoms.

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Employers and employees can look up their state workers' compensation board on the U.S. Department of Labor's website at dol.gov.

Affordable Workers' Compensation Insurance Coverage

Whatever the coverage requirements in your state, we can help. Hourly gets rid of high premiums and makes workers' comp more affordable with pay-as-you-go pricing based on your actual, real-time payroll. 

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We work with insurance agents to help our clients get the best deals on their policies. Talk to your agent today to see how you can get started with Hourly.