Do I Need Workers' Compensation Insurance?

Dave Randle
by Dave Randle, Vice President Sales Strategy and Distribution Management, Main Street America Insurance •

When running a business, budgets can be particularly tight, especially when you’re first starting out. Saving money wherever you can may seem like a good idea, but it could expose you to financial risks. 

In most states and for most types of businesses, workers’ compensation insurance is required by law. Even if you’re hiring an independent contractor or a part-time employee, you may be required to have this coverage.

Workers’ compensation requirements are regulated at the state level. In general, business owners need to purchase workers’ compensation insurance as soon as the first employee is hired. Many states also have penalties for not carrying coverage, and the penalties for not complying with these laws can be far more expensive than insurance premiums. Penalties can range anywhere from $10,000 to $100,000 and even include jail time for failure to carry workers’ compensation insurance. 

The criteria to have workers’ compensation coverage can vary depending on a number of factors. For example, if you employ workers in different states, you’ll need to provide insurance based on the requirements of each state. Some states require you have workers’ compensation coverage even if you are a sole proprietor or if you employ part-time or seasonal employees. Additionally, if you are self-employed, laws or contracts may require that you have coverage in order to get jobs. 

When deciding if workers’ compensation insurance is necessary, you’ll want to make the decision that best protects your business and the people that work for you.

When you’re ready, your independent agent can assist you in determining what insurance protection you need to meet local requirements and to protect your employees. Find an agent to get started.

What Is Workers' Compensation Insurance?

Workers’ compensation insurance ensures that an injured worker’s medical care is paid for and that they are compensated for lost wages, regardless of fault. If a worker loses their life while on the job, the coverage can help pay for funeral costs and provide a death benefit to the employee’s beneficiary. 

It also protects your business from costly lawsuits if a worker is injured or falls ill while on the job. This coverage will limit your out-of-pocket obligations, ensuring business-as-usual for your company and employees. Workers’ compensation insurance comes into play in the event of an injury, including legal fees. Employers liability is also included to protect you against punitive damages, or compensation above and beyond required compensation, related to an employee’s injury or illness.

Which States Require Workers' Comp?

Each state sets its own requirements for workers’ compensation insurance. Because laws are frequently being updated, we recommend checking with your state’s labor department and your independent agent for the latest requirements. The Department of Labor maintains a list of each state labor official  and website that may help you find relevant local information.

Even if your state doesn’t require you to buy workers’ compensation insurance, it might be a good idea to purchase it to better protect your business. If you don’t have workers’ compensation insurance, and one of your employees has a job-related injury, you could be personally responsible for any medical bills or be sued for personal injury or negligence. It’s best to have your bases covered. 

Does an LLC Need Workers' Comp Insurance? 

States that require workers’ comp coverage may provide exemptions for certain types of businesses. For example, seasonal workers or certain types of independent contractors could possibly be exempt from coverage requirements. Those hired to provide expertise in a non-construction capacity are more likely to get the exemption. 

Businesses may not be required to carry workers’ comp insurance on corporate officers who own a certain amount of stock in the company, members of an LLC, partners in a corporation or a sole proprietor. Although the state may not require the members of an LLC to be covered by workers’ comp insurance, it may still be a good idea to get coverage. Being a member of an LLC shields you from personal liability, but it does not prevent anyone, including other members, from suing the LLC. 

Do I Need Workers' Comp for Myself If I Have No Employees?

Even if you are self-employed, you may want to consider workers’ comp insurance. For sole proprietors without employees, workers’ comp will cover your losses for work-related injuries. The right coverage could take care of medical bills and lost wages, which could be a significant need even if you are self-employed. 

Here are a few situations where getting workers comp coverage could benefit you if you’re self-employed:

  • You are a self-employed general or sub-contractor and you want to bid on a job that requires workers’ compensation insurance.
  • You have health insurance but it won’t provide compensation for lost wages in the event you get injured on the job and can’t work.
  • You have auto insurance but its limited liability won’t cover you if you have an accident while working and the injured party sues your business for damages. 
  • You hire independent contractors but the state you work in considers independent contractors as employees.

In all these scenarios, workers’ compensation insurance would save you out-of-pocket expenses and provide an extra layer of protection for your business.

How Much Workers' Comp Insurance Do I Need? 

There are several elements that can determine how much workers’ compensation insurance you need, including the average age of your workforce, the types of risks they face on the job, the cost of living in your area and the number of employees you have.

The cost of workers’ compensation insurance varies widely by state and job type. Most states set minimum standards, but it is a good idea to consult your independent insurance agent to determine how much coverage is right for your unique business.

Choose Main Street America Insurance Workers' Compensation Coverage

As a business owner, you want to make decisions that help your company grow and thrive, and that means having the best coverage for yourself and your employees. Carrying workers’ compensation insurance is an easy way to protect the people who make your business possible. Contact an independent insurance agent to get more specific information about a workers’ compensation policy that is right for you.