Who Needs Workers’ Comp Insurance? State Rules Explained

Who needs workers comp depends on your state. Nearly every state requires employers to carry workers’ compensation insurance, but each sets its own headcount threshold, exemptions and penalties: California requires it with even one employee, Georgia at three regular employees, Florida at four outside construction, and Texas lets most private employers opt out. The only reliable answer for your business comes from your own state’s workers’ compensation agency.

This guide explains how the rules are built, shows how five states differ, and lists the questions that decide whether a particular worker counts.

Who needs workers comp: the general rule

The National Association of Insurance Commissioners states that nearly all U.S. states require employers to purchase a workers’ compensation policy to cover employees, and that the law makes it the sole remedy for an injured employee. It typically pays medical expenses, rehabilitation costs and lost wages (NAIC, Small Business Insurance).

That “sole remedy” point is why the system exists. The employee gets benefits without proving fault, and in exchange the employer is generally protected from being sued for the injury. An employer who skips required coverage loses that protection and faces state penalties.

Workers’ compensation for private employers is state law. The U.S. Department of Labor administers federal programs for federal employees, longshore workers, coal miners and nuclear weapons workers, and maintains a directory linking every state and territory to its own workers’ compensation agency (U.S. DOL, State Workers’ Compensation Officials). Start there to find your state’s rules.

Five states, five different answers

California

The California Division of Workers’ Compensation states that California employers are required by law to have workers’ compensation insurance, even if they have only one employee (California DWC, Employer information). The California Department of Insurance adds that failing to have coverage is a criminal offense, that the state issues penalties of up to $100,000 against illegally uninsured employers, and that a stop order can close a business until coverage is secured (California Department of Insurance, Workers’ Compensation).

New York

The New York Workers’ Compensation Board states that virtually all employers in New York must provide coverage for their employees (NY WCB, Coverage Requirements). The Board can impose a penalty of up to $2,000 for each 10-day period of non-compliance. Going without coverage is a misdemeanor for employers with five or fewer employees in a 12-month period and a class E felony for those with more, and the Board can issue a stop-work order (NY WCB, Violations of Workers’ Compensation Law).

Georgia

Georgia’s State Board of Workers’ Compensation says that if you regularly employ three or more persons in your Georgia business, you must provide the benefits. Regular part-time workers count. Officers of a corporation and members of an LLC are included in the count, and up to five may waive coverage on themselves using form WC-10, but a waiver does not remove them from the count (Georgia SBWC, Workers’ Compensation Insurance FAQs).

Florida

Florida splits the rule by industry. The Division of Workers’ Compensation requires coverage for construction employers with one or more employees, non-construction employers with four or more, and agricultural employers with six regular employees and/or twelve seasonal workers who work more than 30 days in a season. Corporate officers and LLC members count toward the threshold; owners who meet the Division’s requirements may apply for an exemption for themselves (Florida DWC, Coverage Requirements).

Texas

Texas is the outlier. The Texas Department of Insurance says private employers can choose to carry workers’ compensation, but it is not required in most cases. Employers that opt out, known as nonsubscribers, must file a report with the state that they do not have coverage, and must report work-related injuries resulting in more than one day of lost time, plus all work-related illnesses and deaths (TDI, Employer resources). A nonsubscriber gives up the sole-remedy protection, so an injured employee can sue. Client contracts and public projects may still require coverage.

Who counts as an employee

Thresholds count employees, so the classification of each worker decides whether you are over the line. Questions that usually matter:

• Part-time and seasonal workers. Georgia counts regular part-time workers. Florida counts seasonal agricultural workers separately. Check how your state counts them.
• Owners, officers and LLC members. California’s Department of Insurance says executive officers and directors of corporations must be included unless they validly waive coverage. Georgia and Florida count officers and members toward thresholds even when they exempt themselves.
• Independent contractors. The NAIC notes that independent contractors are generally exempt. But labelling someone a contractor does not make them one. The IRS looks at behavioral control, financial control and the type of relationship (IRS, Independent contractor or employee), and state workers’ comp tests can differ from the IRS test. California, for example, points to Labor Code Section 3351 for its definition of an employee.
• Uninsured subcontractors. Some state laws can make a hiring business responsible for an uninsured subcontractor’s injured workers; ask your state agency how yours treats them. Either way, collect a current certificate of insurance from every subcontractor.
• Household and farm workers. The NAIC lists domestic employees in private homes, farm workers and unpaid volunteers among those generally exempt, though states set the details, as Florida’s agricultural rule shows.

Monopolistic states

In most states you buy workers’ compensation from a private insurer or a state fund that competes with them. In four states, North Dakota, Ohio, Washington and Wyoming, the state administers its own plans and rates, according to NCCI (NCCI, ABCs of Experience Rating). If you operate there, coverage comes through the state program rather than a private policy.

If you have employees in more than one state

Each state’s rules apply to work done there. A remote employee in another state, or a crew sent across a state line, can trigger that state’s requirements. Tell your insurer every state where you have workers so the policy lists them.

A checklist before you decide you are exempt

1. Find your state agency through the DOL directory and read its coverage requirements page.
2. Count every worker the state counts, including part-time, seasonal, officers and LLC members.
3. Test each “contractor” against the state’s definition of employee, not just the IRS test.
4. Collect certificates of insurance from subcontractors.
5. Check client contracts, leases and public bids for coverage requirements.
6. Remember that workers’ comp is priced on payroll and class codes, as explained in how workers’ comp premiums are calculated.

Workers’ comp sits alongside your other policies: general liability excludes injuries to your own employees, and a business owner’s policy does not include workers’ comp. Once you buy a policy, ask your state agency whether it offers an online coverage verification tool, and confirm your policy shows up there in the first week.

Sources

• National Association of Insurance Commissioners: Small Business Insurance
• U.S. Department of Labor, OWCP: State Workers’ Compensation Officials
• California Division of Workers’ Compensation: Employer information
• California Department of Insurance: Workers’ Compensation
• New York Workers’ Compensation Board: Coverage Requirements
• New York Workers’ Compensation Board: Violations of Workers’ Compensation Law
• Georgia State Board of Workers’ Compensation: Workers’ Compensation Insurance FAQs
• Florida Division of Workers’ Compensation: Coverage Requirements
• Texas Department of Insurance: Employer resources
• IRS: Independent Contractor (Self-Employed) or Employee?
• NCCI: ABCs of Experience Rating