Workers’ compensation is the only legally required commercial insurance policy. Employers may be held liable for workplace injuries and penalized for not carrying coverage.
Workers’ compensation laws are regulated at the state level, and requirements vary from state to state. Select your state below to learn more.
Workers’ compensation, protecting workers in the event of a job-related injury or fatality, covers nearly all employees in the United States. However, it is regulated at the state level, and every state has its own laws.
How much do regulations differ from state to state? Quite a lot, in some cases. In general, the factors that differ include:
Can you purchase a policy from any commercial insurer licensed in that state, like in Florida, California or New York? Or do you have to buy it through the state, like in Ohio and Wyoming?
Do you have access to a public option or state fund that competes with the private market?
Employee limits determine when a business is required to carry a work comp insurance policy, based on the total number of employees. Often businesses with three or fewer employees aren’t required to carry coverage, but it can vary from state to state.
States with more lenient employee limits include Georgia, where only businesses with three or more employees must carry coverage. States with more strict employee limits include New York, California and Illinois, where all employees must be covered by an active workers’ compensation policy.
Workers’ compensation insurance is the only commercial insurance policy that is legally required. Depending on your state and number of employees, you may be penalized for not carrying coverage.
But keep in mind, even if your small business is not required to carry insurance, you may still be responsible for the costs of a workers' compensation claim. So it may be advantageous to carry coverage anyway, to protect against a claim.
Most states agree that full- and part-time workers are employees, and in nearly all cases, part-time and seasonal employees are considered the same as full-time employees in your total employee count.
But they may differ in how they treat others that work with or for the company, such as:
In addition, owners, officers, LLC members and sole proprietors might be able to opt-out of coverage, but they might still count toward your total number of employees, putting you at or over your state’s minimum to carry workers’ comp insurance.
And no matter how your state categories workers, employers should have workers’ compensation insurance in effect as soon as that threshold is met. This means that if a new hire — even a temporary or seasonal one — will meet your state’s employee limit, you need to have coverage in place on or before their first day.
Tip: This is also why it's important to clearly differentiate between employees and independent contractors. In the case of a dispute, the courts and legal precedents may skew in favor of siding with workers vs. employers, depending on the state.
All work comp policies provide coverage within state lines. Some states allow reciprocity with other states, or honor an All States Endorsement for temporary work or business-related travel. Check your state guidelines to be sure.
To comply with workers’ compensation, identify the correct state. Businesses must follow the laws of the state where employees work. This includes considerations for businesses operating in multiple states or hiring workers out of state.
This system comprises laws dictating worker protection and employer responsibilities, a state board or regulating body for rules and dispute resolution, and a rating bureau like the NCCI for setting rates. Some states have a state fund or offer an assigned risk pool for higher-risk businesses.
Like we covered above, regulations vary significantly by state. Factors include where to purchase insurance, who needs to be covered, the definition of an employee, and out-of-state work considerations. Employee limits, treatment of different worker categories, and options for opting out of coverage are also state-specific. Always ensure coverage meets your state’s employee limit, including for new hires.
State law dictates who must be covered under a workers' compensation insurance policy. Generally, businesses with employees are required to carry insurance, but requirements can vary. If required to carry coverage, all employees, including full-time, part-time, seasonal, and temporary workers, must be included on the policy.
In most states, workers’ compensation is provided by insurance carriers or through a state agency that has workers’ compensation insurance providers on its roster. Some states, like Arizona, offer a state fund or a government-run insurance carrier. Hard-to-insure businesses might need the state's assigned risk pool, either state-run or managed by a third party, to secure coverage.
Be sure to purchase coverage from an insurance carrier licensed to write workers' compensation insurance in your state.
Rates vary across the country, influenced by worker wages, medical care costs, state economic makeup, and claim history. For instance, a plumbing business in Indiana might pay less annually for work comp compared to a similar business in California.
Why?
State governments play a role in writing or interpreting laws governing the workers’ compensation system. They control costs, resolve disputes, and determine medical care administration. Rates are also influenced by wages, medical costs, the state's economic makeup, and its history of claims. National trends like gig economy workers also affect work comp markets, but legal standards, rates, and enforcement are state-specific.
For more information on buying workers' compensation insurance in your state, see these resources:
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