Workers’ compensation insurance is a type of business insurance coverage that can help cover costs if full-time and part-time employees get injured or become ill because of their job. It’s designed to help protect business owners from the costs of workplace accidents.
Workers’ comp could help cover the costs of:
- Medical expenses related to a work injury or illness.
- Lost wages while an employee recovers.
- Rehabilitation, disability payments or ongoing medical care costs.
- Job retraining if an affected worker can’t return to their same position due to injury.
- Death benefits / survivor benefits.
Workers’ comp insurance also helps protect business owners with employers liability coverage to help protect them from some legal matters related to employee claims. Under workers’ comp care, employees typically give up the right to sue their employer for injuries. For business owners, that can mean fewer out-of-pocket costs and less legal risk. For employees, it offers financial support during recovery so they can focus on getting back to work.
Do I need Workers’ Comp insurance legally?
Each state sets its own rules, but requirements are typically based on:
- The state where you do business.
- Whether or not you have employees.
- The number of employees you have.
- Your industry and your business’ level of risk.
For example, some states require coverage across all industries even if you have just one employee. Other states may not require coverage until you have three or four employees. And still other states offer limited workers’ comp exemptions, excusing you from the requirement of workers’ comp coverage based on specific conditions. Be sure to check the workers’ comp regulations in your state to see what’s required.
And a workers’ compensation policy isn’t just for full-time staff. Depending on your state, you may need coverage for:
Beyond state and legal requirements, workers’ comp can be required by clients to:
- Sign a contract for a job.
- Work on some job sites.
- Meet vendor requirements.
- Be in compliance with professional licensing requirements.
Do I need Workers Comp insurance for myself?
Workers’ comp coverage for employees doesn’t automatically cover business owners. But business owners do have the option to add business owners coverage to their policy to get the same benefits and protections of workers’ comp.
While most states don’t require the owner of the business to carry workers’ comp for themselves, many opt in to coverage for its added financial protection. This is especially common for employers who work alongside their employees in hands-on professions like construction, cleaners and fitness. Contractors and subcontractors may also choose to include themselves on the company policy because contracts often require proof of workers’ compensation coverage before they can start a job.
If you don’t add yourself to your company’s workers’ comp coverage you might have to pay out-of-pocket for work-related medical expenses. And you might lose income if you can’t work during recovery.
Learn more: Do business owners need workers’ compensation for themselves?
Do I need Workers’ Comp insurance if I’m self-employed?
A self-employed house cleaner, a personal trainer who works with clients at their homes, a freelance electrician — these types of small businesses and other sole proprietors and independent contractors are not legally required to carry workers’ comp in all states. But all of these jobs require physical work where a single injury could mean weeks without income. “Not required” doesn’t mean “not at risk.”
That’s why many small business owners that don’t have employees still opt for business owner workers’ comp coverage to help protect their income if they’re injured on the job.
Consider workers’ comp if you:
- Work in a higher-risk industry like construction, cleaning or fitness.
- Need proof of insurance coverage (also called a COI) to win contracts or access job sites.
- Rely on your physical ability to earn income.
Workers’ Comp insurance vs. health insurance
Workers’ comp and health insurance may both help with medical costs, but they serve different purposes.
Workers’ comp insurance:
- Applies specifically to work-related injuries or illnesses.
- Can help cover medical bills, a portion of lost wages and rehabilitation.
- May include employer liability protection if a claim is filed.
Health insurance:
- Covers everyday medical needs like checkups, prescriptions and ongoing care.
- Applies to illnesses and injuries outside of work.
- Typically doesn’t replace lost income.
Health insurance helps with general care, while workers’ comp is designed for job-related risks — especially those that could impact your ability to earn.
Let’s say while working, you fall and injure your knee. If you had business owners coverage, workers’ comp could help cover your initial treatment, physical therapy and a portion of lost wages if you had to take time off to recover. But if that injury later leads to ongoing health conditions, your health insurance would likely help cover additional care since it isn’t directly tied to the workplace injury.**
What happens if I don’t have Workers’ Comp?
If workers’ comp insurance is required in your state and you don’t have it, your business could face serious consequences.
Workplace injuries are common and the financial exposure can be severe. Private industry employers reported 2.5 million nonfatal workplace injuries and illnesses in 2024, according to the U.S. Bureau of Labor Statistics. Without workers’ comp, every one of those injuries is a potential out-of-pocket liability for the business owner.
If you don’t have workers’ comp, you could be on the hook for:
- Paying medical bills and lost wages out of pocket.
- Fines or penalties for non-compliance.
- Stop-work orders that pause your business operations.
- Lawsuits if an employee is injured on the job.
Learn more: What could happen if you don’t have workers’ compensation insurance?
How much does Workers’ Comp insurance cost?
Workers’ comp insurance costs vary widely based on your business. There’s no one-size-fits-all price. But for most small businesses, it’s potentially far less expensive than a single uninsured injury claim.
Your premium is typically based on a few key factors:
- Industry risk level: Higher-risk jobs (like construction) often cost more than lower-risk roles (like consulting).
- Payroll size: The more employees you have, the higher your total cost may be.
- Location: Rates vary by state due to different laws and claim costs.
- Claims history: Past claims can impact your premium over time.
- Type of work performed: Even within the same business, different roles may be classified at different risk levels.
- Coverage limits and policy details: The level of coverage you choose can influence your overall cost.
The best way to understand your cost is to get a quote based on your specific business details.
