What Is Workers’ Compensation Insurance?

No matter what type of business you run, there’s a chance employees could get hurt or sick. They might slip on a wet floor, fall off a ladder, cut themselves with a blade, or get in a car accident while running a business errand. Because your employees can become hurt or sick in numerous ways, your business must have workers’ compensation insurance.

What is workers’ compensation insurance?

Workers’ compensation is a state-mandated insurance that provides medical benefits and wage replacement for employees who have a job-related illness or injury. When an employee accepts workers’ comp benefits, they typically waive their right to sue you. Workers’ compensation insurance also goes by workers’ comp or workmans’ comp.

Workers’ compensation insurance covers employees regardless of who is at fault. You, the employee, a co-worker, a customer, or something else could cause the illness or injury.

There are some restrictions, however. An employee cannot receive benefits if the illness or injury is purposefully self-inflicted, not job-related, or received while committing a crime or violating a company policy. You will want to take the necessary steps if you suspect workers’ compensation fraud.

An employee doesn’t have to have an accident at work to receive benefits; it just needs to be work-related. The illness or injury can happen over a long period of time, such as carpal tunnel syndrome, chronic back problems, lung disease, hearing loss, and stress-related injuries.

And the injury doesn’t have to happen at the workplace; it just has to be work-related. An employee can be hurt while running a business errand or traveling for business.

If an employee has a job-related illness or injury, you should not retaliate or threaten the employee to prevent them from filing a claim. If you do threaten or retaliate against the employee, they can report you to your state or insurance agency.

Workers’ compensation benefits

Workmans’ compensation pays out benefits to help employees when they receive a work-related illness or injury. Workers’ comp benefits your employees might be eligible for include:

  • Payment for diagnosis, treatment, and rehabilitation
  • Job retraining
  • Pay while unable to work (normally about ⅔ of typical wages, with caps)

Workers’ compensation costs

You are responsible for paying workers’ compensation insurance premiums. Your premiums are based on the amount of your payroll, the type of work employees do, and how many claims you’ve had in the past. Rates might range from $0.75 to $2.74 per $100 of employee wages.

Depending on your policy, you will either have annual payments or monthly payments. If you pay an annual lump sum, you will have one large payment. If you pay as you go each month, you will have smaller payments, which might help your cash flow.

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State requirements

Each state has its own workers’ compensation laws and programs.

Workers’ compensation insurance is a legal requirement in most states. However, some states allow employers to elect coverage until they reach a certain number of employees. Once a business reaches a set number of employees, the business must have workers’ comp insurance.

For example, South Dakota and Texas allow all employers to elect workers’ compensation insurance, no matter the type of work or number of employees.

Most states allow employers to shop around for workers’ compensation coverage. However, employers must purchase insurance from the state in North Dakota, Ohio, Washington, and Wyoming.

Workers’ comp by state (Chart)

Use our chart below to determine your state’s workers’ compensation requirements. Click on your state to learn more.

StateIs Workers’ Comp Required?
AlabamaIf you have 5 or more employees.
ArkansasIf you have 3 or more employees.
FloridaIf you have 4 or more employees.
GeorgiaIf you have 3 or more employees.
MississippiIf you have 5 or more employees.
MissouriIf you have 5 or more employees.
New HampshireYes
New JerseyYes
New MexicoIf you have 3 or more employees.
New YorkYes
North CarolinaIf you have 3 or more employees.
North Dakota*Yes
Rhode IslandYes
South CarolinaIf you have 4 or more employees.
South DakotaNo
TennesseeIf you have 5 or more employees.
VirginiaIf you have 2 or more employees.
West VirginiaYes
Wisconsin If you have 3 or more employees.

*You must obtain workers’ compensation through your state’s program.

Check with your state’s workers’ compensation office for more information.

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This article is updated from its original publication date of October 11, 2017.

This is not intended as legal advice; for more information, please click here.

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