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The Small Business Owner's Guide to Workers' Compensation Insurance

Small businesses make up 99.7% of U.S. employer firms, and there are approximately 6 million small business employers across the U.S.* Nearly all of them must carry workers’ compensation insurance.

Despite being a necessity for almost every U.S. employer, workers’ compensation law can be confusing and complicated for small business owners. What’s more, insurance companies have little incentive to write policies for less than five employees or $250,000 in payroll. Shouldn’t it be easier to get something you have to have?

WorkCompOne is where small businesses get workers’ compensation. We believe small business owners deserve a faster and simpler workers’ compensation solution. This guide outlines what you need to know to buy workers’ compensation insurance.

Buy Small Business Workers’ Compensation Insurance. If you know you need coverage, start a hassle-free quote with WorkCompOne now.


*Source: Small Business Administration

Workers' Compensation Insurance 

The U.S. Small Business Administration reports that 21.5% of small businesses employ at least one worker, which means approximately 1 in 5 small business owners is legally required to carry a current workers’ compensation insurance policy, with enough coverage for their current staff.

“Approximately 1 in 5 small business owners is legally required to carry workers’ compensation insurance.”

Failure to provide proof of insurance or a lapse in coverage can expose a small business to legal and financial liability. The employer may need to cover medical expenses out of pocket, an injured employee may be able to sue for negligence, and the state may impose fines or disbar the business from public work contracts.

A workers’ compensation insurance policy serves both employee and employer with the following benefits:

  • Medical: Medical care for injuries an employee sustains in their line of work.
  • Vocational rehabilitation: Rehab to return worker to health and transition them back to the workforce.
  • Disability: If the worker is unable to return to work after the injury, work comp can cover disability benefits.
  • Death benefits: In the event of an employee fatality, the policy pays out death benefits to the surviving family.
  • Employer liability: Covers the employer’s liability for potential negligence.
  • Legal costs: If the work comp claim is challenged or an employee sues the employer for damages, the policy would defend and indemnify the employer.

Whether or not it’s required, workers’ comp insurance protects small business owners by covering medical expenses and lost wages for injured workers, and pays for employer legal defense fees in the event of a lawsuit.

Workers’ compensation is, in essence, a compromise between employer and employee. The history of workers’ compensation in the U.S. goes back to worker protections that arose from the Progressive Era in the early 20th century.

After a deadly fire at the Triangle Shirtwaist Company factory in New York City, state legislatures began to require employers to compensate workers for injuries sustained on the job, regardless of fault. The insurance product followed soon after to help employers afford work comp claims, by offering no policy limits on employee medical care.

Workers' Compensation Insurance Requirements

Workers’ compensation is mandated across the U.S., but because it’s regulated at the state level, each state has its own requirements. Familiarize yourself with your state’s rules to make sure you’re in compliance, and keep in mind that you must abide by the rules of the state where your employees are performing work - not where your business was founded or is headquartered.

These factors often differ from state to state:

  • Public vs. private: Whether business owners can purchase a policy from any state-licensed insurer, or if all employers must buy from the state fund. Some private market states also offer a public option or state fund, which we cover in the next section.
  • Employee limits: How many employees an employer can have before covering them with a work comp policy; often one to three employees is permissible. However, without insurance you may still be held liable if a worker is injured on the job.
  • Employee definition: Most states agree that the employee limits apply to full- and part-time employees, but they may differ in how they treat sole proprietors, partners, members of an LLC, independent contractors, "gig economy" workers and family members.
  • Out-of-state work: All work comp policies, by default, provide coverage within state lines. Some states offer reciprocity with other states, or honor an All States Endorsement. This can be added to a policy by your insurer to allow coverage to apply in any non-monopolistic state for temporary work or business-related travel.

Workers' compensation across state lines: If your employees are traveling across state lines for work, or your business is moving or expanding to another state, check the requirements there before employees begin work.

Do Business Owners Need Workers' Compensation? 

Do business owners need to buy workers' comp insurance for themselves? Or if they purchase a policy for employees, are they covered case of injury, too? The answer is, it depends. 

Depending on the state, owners and corporate officers may be allowed to exempt themselves from coverage if they wish. Certain states include or exclude owners by default. Lastly, these exceptions are sometimes specific to the individuals role: sole proprietors might be handled differently than partners, LLC members or corporate officers. 


“Many independent agents can’t or won’t write work comp because it’s often more difficult and less profitable work for them. In this case, a work comp specialist can provide the guidance and policy you need.”

How to Buy Work Comp Insurance

If you need to buy workers’ compensation insurance, you can quote and bind in as little as one business day. Here’s what you need to know to get started.

person-801829_640Workers' Compensation Insurance Companies

Whether your state has a private or public work comp market will dictate your options for insurance shopping. In a monopolistic state? Find out your state’s workers’ compensation provider, and purchase a policy through the state fund.

If you’re in a private-market state, you have a few additional options:

Insurance carrier, broker or agency: A licensed insurance carrier that sells workers’ compensation coverage.

Most small businesses will start shopping with their local broker or insurance agency. An independent agent can shop several carriers and bring you the best price. However, many independent agencies can’t or won’t write work comp because it’s often more difficult and less profitable work for them. In this case, a work comp specialist can provide the guidance and policy you need.

Check that your selected insurer is licensed to write in all states where you need employees covered.

State fund: An insurance carrier run by the state government, which in non-monopolistic states competes with the private market. It can be a good alternative for businesses having a hard time finding coverage elsewhere.

Assigned risk pool: Because carrying insurance is legally mandated, employers have to find coverage somewhere. As a solution, some states offer an assigned risk pool for higher-risk businesses; for example, more injury-prone industries like roofing or businesses that have had multiple work comp claims.

If you’ve been denied coverage by several insurers, consider contacting your state’s assigned risk pool for coverage.


How to Get a Work Comp Quote

To get a quote, you’ll need to provide information on your company and employees. Have the following in front of you before contacting an insurer:

  • Number of employees, and how many perform each type of work. If you already know the class code(s) that apply to your business, share them.
  • Total payroll for all employees. If you don't wish to be covered under the policy, ask whether your state allows you to be excluded.
  • Federal ID Number. If you are a sole proprietor, you can use your Social Security Number.
  • Copy of your workers’ comp insurance policy. If you have or had coverage, you’ll be asked about the details of that policy, and if you’ve submitted any claims.
  • Experience Modifier: If your business has been assigned an Experience Modifier, have your Experience Mod rating sheet or policy in front of you.

That’s it! Requesting a quote can be done in less than 10 minutes.

“You can control costs by working with an insurance agent that has a strong network of carriers, and by encouraging safe workplace practices.”

How Much Does Workers' Compensation Insurance Cost?

As an employer, workers’ compensation is a necessary cost to budget for the upcoming year. How much should you set aside? A small business workers’ comp premium can range from a few hundred dollars to a few thousand dollars, depending on four main factors.

  1. Class code: Every business is assigned an industry classification code by a third-party organization that collects data on reported workplace injuries. The class code and work comp data is used to communicate the relative risk employees face, and to recommend a baseline cost to insure workers in that business. In some states, this base rate is assigned and cannot be altered by the insurer.
  2. Location: Like many industries, insurance is influenced by the economy and government regulation of each state, and this drives costs. In general, more strictly regulated and worker-favoring work comp systems like Florida and Massachusetts can expect higher rates than less regulated and more business-favoring states.
  3. Payroll: It’s actually payroll, not number of employees, that is used to calculate the final premium cost. If your state has a higher cost of living with higher-than-average wages (for example, California and New York), you can expect work comp costs to be on the higher end of the national range.
  4. Experience: New businesses and businesses with a history of claims will have a harder time securing coverage, and may pay higher rates. After three years in business, you are assigned an Experience Modifier, which reflects the company’s workplace safety relative to others in the same class code. This Experience Mod is a mandated credit or debit that any insurer must apply to your final premium cost.

Business owners cannot control many aspects of a work comp premium. You can control costs by working with an insurance agency that has a strong network of business insurance carriers, and by encouraging safe workplace practices. Many insurers also offer a variety of payment options to spread costs throughout the year. 

Learn more about how a workers' compensation premium is calculated, or read our post on how to estimate what your policy will cost.

work-comp-quoteBuy Small Business Workers’ Compensation Insurance

WorkCompOne offers a new, simpler way to get the work comp coverage you need. No more complicated forms, and no business too small.

We’ve helped thousands of small businesses get covered - Get your workers’ compensation quote today.

About WorkCompOne

If you’re a small business owner, you’re familiar with the frustrations of workers’ compensation insurance. The team at WorkCompOne knew there had to be a better way to connect small business owners with the work comp policies they need. 

WorkCompOne is a Cleveland-based online insurance agency that’s changing workers’ compensation insurance. By bringing together best practices in technology and insurance, we’ve built an easy, new way for businesses to secure workers’ compensation insurance online.

Trusted by thousands of small businesses since 2012, WorkCompOne offers coverage to businesses of all sizes through its online platform, best-in-class customer service and partnership with leading national carriers. Learn more about the WorkCompOne solution.

Frequently Asked Questions

We've rounded up quick answers to the most commonly asked workers' compensation questions in this post: Your Most-Asked Questions About Workers’ Compensation, Answered [FAQs]

Have more questions about work comp? Try these resources: