Workers’ compensation insurance is required for most businesses in nearly every state, but there are some exceptions. Are you unsure if your business fits the criteria for needing coverage? Keep reading to learn:
- Who needs workers’ comp insurance?
- Do you need workers’ comp insurance for one employee?
- Do small businesses need workers’ comp insurance?
- When is workers’ comp insurance required?
- What happens if you don’t have workers’ comp insurance?
Most businesses with more than a few employees are required to purchase workers’ comp coverage, regardless of the state or states they work in, but there is no universal rule across the U.S. Each state has different workers’ compensation laws, so it’s important to understand your state laws or work with an insurance agent who does.
Depending on the state, these groups may be exempt from workers’ comp requirements:
- Independent contractors
- Sole proprietors
- Corporate officers
- Domestic workers
- Agricultural laborers
- Real estate agents
- Employers with less than two, three, four, or five employees
Texas doesn’t require most private employers to carry workers’ comp insurance, but opting out of coverage exposes employers to injury lawsuits. South Dakota also does not have a law requiring coverage, but the state highly recommends it.
In most states, employers with one employee must buy coverage, but there are a few exceptions. These are the requirements for states that don’t mandate coverage for one employee:
- Alabama: Five or more employees
- Arkansas: Three or more employees
- Florida: Four or more employees
- Georgia: Three or more employees
- Kansas: Coverage is required for any business with more than $20,000 of payroll, regardless of employee count
- Michigan: Three or more employees (or less if one of your employees works 35 hours or more for more than 13 weeks)
- Mississippi: Five or more employees
- Missouri: Five or more employees
- New Mexico: Three or more employees
- North Carolina: Three or more employees
- South Carolina: Four or more employees
- South Dakota: Coverage is not required for any employer, but it’s highly recommended
- Tennessee: Five or more employees
- Texas: Coverage is optional for private employers
- Virginia: Two or more employees
- Wisconsin: Three or more employees
Companies in construction or other high-risk industries might be required to purchase coverage for one employee in some of the above states.
If you think you may be exempt from workers’ compensation coverage based on your type of business or the employees you hire, check with your insurance agent.
Unless they meet the above exemption criteria, most small businesses need workers’ comp insurance. No matter your state’s rules, you should strongly consider purchasing coverage as a small business.
If you don’t have a workers’ comp policy, your employees can sue you for workplace injuries. Depending on their injury, you could end up paying hundreds of thousands of dollars out of pocket—which is enough to shut down most small businesses for good.
In most cases, states require businesses to buy a policy as soon as they hire their first employee (or meet the state’s criteria). Failure to purchase a policy is a punishable offense. If you wait to buy a policy until several months—or years—after you meet your state’s coverage requirements, you could face penalties.
Each state has different penalties for uninsured employers. These can include:
- Misdemeanor or felony charges
- Prison time
- Stop work orders
In addition to fines and penalties, business owners can face expensive lawsuits for work-related injuries.
Workers’ comp insurance might seem complicated, but it doesn’t have to be. With the right insurance agent on your side, you can easily fulfill your state’s coverage requirements.
Southpoint is an Illinois-based insurance agent, but our workers’ comp experts know the coverage requirements for states across the Midwest and beyond. We use our long-term relationships with insurance companies to shop for the best coverage in your state, and our team is always available to help with claims. Plus, worker’s comp isn’t our only specialty—we can help you find any commercial insurance policy you might need to protect your business.
Request a workers’ comp quote today or get in touch with our team to learn more about your insurance requirements.