When Is Workers’ Compensation Insurance Required?

A woman working in construction holds her injured ankle following a workplace injury.
| 02.17.22
Sarah Prais

Everyone wants to feel safe where they work. It is a fundamental right, and it should not be taken lightly. Workers' compensation insurance should be purchased for your business not only to give employees peace of mind but to give you a sense of security in your business in case a workplace injury were to occur. This type of insurance is a policy that protects everyone involved. In most states, workers' comp is even required.

The Importance Of Workers’ Compensation Insurance And How Your Business Location Matters 

What Is Workers’ Compensation? This business insurance type provides wage replacement and medical benefits to your employees if they are injured or disabled while on the job or during the course and scope of their employment. In exchange for this coverage, employees give up their rights to sue your business for the injury or illness. It is a mutually beneficial type of coverage.

The History Of Workers’ Compensation Laws. The idea of workers’ compensation in the US began with the Federal Employers Liability Act of 1908. It was enacted explicitly for railroad workers engaged in hazardous work. Wisconsin was the first state to require an employer to compensate a worker for an on-the-job injury in 1911 with the Workmen’s Compensation Act. Between 1911 and 1948, the rest of the US states, except Texas, passed similar laws. To this day, Texas remains the only state that does not make workers’ compensation a requirement.

Workers’ Compensation Requirements. Even if you just have one employee at your business, some states still require workers' comp. This is where research comes in for your particular state. You want to adhere to each state’s laws and standards to ensure that your employees are appropriately covered in the event of an injury in the workplace or illnesses on site. As an employer, you should provide your employees with a workers' comp claim form in case anything happens. Along with the claim form, the employer should include a list of the employee’s rights, their benefits, and exact instructions on how to file a claim just in case an injury occurs.

Are There Exemptions? Yes, for some states, there are exemptions. In some cases, small businesses (like non-profits) or small business owners themselves and workers considered non-employees such as contract workers are exempted. Freelancers, domestic workers in private homes, and even construction workers can also fall under this category. Some states utilize certain forms or waivers to enact this. It is essential to consider your particular state. As it stands, 27 states have more stringent laws for freelance-based employees. Is your state one of those 27? Illinois is!

Penalties For Some States. There are some states that will enact a severe penalty if your business does not purchase workers comp. This penalty might include a fine, jail time, shuttering your business, or potentially all three, depending on the situation. Illinois, California, New York, and Pennsylvania have such penalties.

How To Buy Workers’ Compensation Insurance In Your State. Most states allow you to shop around for your workers’ compensation coverage, whether you choose to buy from a state fund or a private insurer. Four states have monopolistic state funds instead. This means you are required to purchase workers’ compensation insurance directly from the state-allocated fund in North Dakota, Ohio, Washington, and Wyoming. (These are known in the industry as monopolistic states.)

Regardless of where your business resides in the US or how you define your employees, you must research all of your options for Workers Compensation Insurance and consider this protection for your employees and your business. It is better to be prepared instead of winding up with unsupported employees and lawsuits. Your employees want to feel they are protected on the job. This essential type of insurance will help your employees realize they are taken care of, and so is your business.

About the Author

Sarah Prais is a content creator who enjoys blogging on a myriad of topics both professionally and personally. She loves spending time with her crazy dog, and watching anything on Shudder with her fellow horror fan—aka boyfriend.