Workers' Compensation Insurance Guide

Workers' compensation is an employer-funded insurance program that provides benefits to employees with work-related injuries or health conditions.
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Workers' Compensation Insurance Guide

Written by Brian Greenberg
CEO / Founder & Licensed Insurance Agent

Last updated: November 24th, 2022

Reviewed by Paige Geisler
Licensed Insurance Agent

What Is the Definition of Workers’ Compensation?

Workers’ compensation is an employer-funded insurance program that provides benefits to employees with work-related injuries or health conditions. Benefits typically include coverage for healthcare expenses, wage replacement, and compensation for survivors in case of death.

Workers’ comp laws are administered by state governments. Participation rules and required benefits vary from state to state.

How Does Workers’ Compensation Insurance Work?

If an employer is required to carry workers’ compensation insurance, they must buy a policy from a licensed provider. Each state varies on how many employees you must have to be required to provide this coverage, so check with your insurance company if you have doubts about the requirements. When an employee is injured on the job or gets a work-related illness, they can report it to the employer, who makes a claim. If it’s approved, the employee receives benefits from the insurance company.

Workers’ Comp for Employers

Workers’ compensation insurance protects your employees and helps reduce your risk of being sued. If you run a business with employees — even a small business — it’s your responsibility to comply with your state’s workers’ comp laws.

Coverage is mandatory in every state except Texas; specific requirements vary by state. If you meet the criteria, you must carry a policy and meet state claim-filing deadlines. Failure to buy mandatory insurance can result in hefty fines, lawsuits, and even jail time.

Most states require you to carry workers’ compensation insurance if you have one or more employees; a few states don’t require insurance until you have three to five employees. Kansas uses your payroll to determine when you need to buy insurance. Texas is the only state that doesn’t mandate coverage for any employer unless you run a construction company that works on government contracts. If you do a significant amount of business in another state, check the local laws; you may also need coverage in that state.

Minors and part-time workers typically count as employees, but independent contractors do not. Directors, owners, corporate officers, partners, and LLC members can often choose to be excluded from coverage.

Your insurance options also depend on your state. In most states, you can opt to purchase a policy from a licensed commercial insurance provider. States such as Washington and Wyoming require you to buy insurance through state-run funds. You can opt to self-insure in many areas if your company is approved by the state workers’ compensation board or agency.

If your company doesn’t require workers’ comp, you may be able to opt into the program anyway.

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Workers’ Compensation Employee Requirements by State

If you’re not sure if your state requires your business to buy workers’ compensation insurance, check out the table below. Keep in mind that each state has its own definition of what constitutes an employee — most states count family members and part-time workers as well as full-time. Many states also offer exceptions for sole proprietors and LLC members, but this is not universal. Check with the agency that administers the workers’ compensation program in your state for specifics.

StateEmployee/Payroll RequirementState Website
Alabama5 employeesAlabama Department of Labor – Workers’ Compensation Division
Alaska1 employeesAlaska Department of Labor and Workforce Development – Division of Workers’ Compensation
Arizona1 employeesThe Industrial Commission of Arizona (ICA)
Arkansas3 employeesArkansas Workers’ Compensation Commission
California1 employeesCalifornia Department of Industrial Relations- Division of Workers’ Compensation (DWC)
Colorado1 employeesColorado Department of Labor and Employment – Division of Workers’ Compensation
Connecticut1 employeesConnecticut Workers’ Compensation Commission
Delaware1 employeesDelaware Department of Labor – Office of Workers’ Compensation
District of Columbia1 employeesD.C. Department of Employment Services – Office of Workers’ Compensation
Florida4 employees (non-construction businesses), 1 employee (construction businesses), 6 employees and/or 12 seasonal employees (agricultural businesses)Florida Division of Workers’ Compensation
Georgia3 employeesGeorgia State Board of Workers’ Compensation
Hawaii1 employeesHawaii Department of Labor and Industrial Relations – Disability Compensation Division (DCD)
Idaho1 employeesIdaho Industrial Commission
Illinois1 employeesIllinois Workers’ Compensation Commission
Indiana1 employeesWorkers’ Compensation Board of Indiana
Iowa1 employeesIowa Division of Workers’ Compensation
KansasPayroll of $20K or moreKansas Department of Labor – Workers Compensation Division
Kentucky1 employeesKentucky Department of Workers’ Claims
Louisiana1 employeesLouisiana Workforce Commission – Office of Workers’ Compensation Administration (OWCA)
Maine1 employeesMaine Workers’ Compensation Board
Maryland1 employeesMaryland Workers’ Compensation Commission
Massachusetts1 employeesMassachusetts Department of Industrial Accidents (DIA)
Michigan1 employeesMichigan Workers’ Disability Compensation Agency
Minnesota1 employeesMinnesota Department of Labor and Industry – Workers’ Compensation Division
Mississippi5 employeesMississippi Workers’ Compensation Commission
Missouri5 employeesMissouri Division of Workers’ Compensation
Montana1 employeesMontana Department of Labor and Industry – Employment Relations Division
Nebraska1 employeesNebraska Workers’ Compensation Court
Nevada1 employeesNevada Department of Business & Industry – Division of Industrial Relations
New Hampshire1 employeesNew Hampshire Department of Labor Workers’ Compensation Division
New Mexico3 employeesNew Mexico Workers’ Compensation Administration
New York1 employeesNew York State Workers’ Compensation Board
North Carolina3 employeesNorth Carolina Industrial Commission
North Dakota1 employeesNorth Dakota Workforce Safety & Insurance
Ohio1 employeesOhio Bureau of Workers’ Compensation
Oklahoma1 employeesOklahoma Workers’ Compensation Commission
Oregon1 employeesOregon Workers’ Compensation Division
Pennsylvania1 employeesPennsylvania Department of Labor and Industry – Bureau of Workers’ Compensation
Rhode Island1 employeesRhode Island Department of Labor and Training – Workers’ Compensation Division
South Carolina4 employeesSouth Carolina Workers’ Compensation Commission
South DakotaOptionalSouth Dakota Department of Labor & Regulation
Tennessee5 employees, 1 employee (construction or coal mining businesses)Tennessee Department of Labor & Workforce Development – Bureau of Workers’ Compensation (BWC)
TexasOptional, except for construction businesses working on government contractsTexas Department of Insurance – Division of Workers’ Compensation (DWC)
Utah1 employeeUtah Insurance Department
Vermont1 employeeVermont Department of Labor
Virginia2 employeeVirginia Workers’ Compensation Commission
Washington1 employeeWashington State Department of Labor & Industries
West Virginia1 employeeWest Virginia Offices of the Insurance Commissioner
Wisconsin3 employees, 1 employee (if they earn $500 or more in any one quarter)Wisconsin Department of Workforce Development
Wyoming1 employeeWyoming Department of Workforce Services

Workers’ Comp for Employees

When you work for a company that’s required to carry workers’ compensation insurance in your state, you’re automatically covered. To qualify for benefits, your injury or illness must be directly linked to your job. It’s your responsibility to follow employer policies and state law when reporting, filing claims, and seeking medical attention. Keep in mind that when you agree to take benefits from your employer’s workers’ compensation insurance, you’re also waiving your right to sue the company over the incident.

When you’re injured or taken ill because of work, it’s important to document the situation and report the incident to your company as soon as possible. Every state sets its own reporting regulations, but there are typically two deadlines to consider. The first determines how much time you have to make a report to your employer — usually, you have 21-30 days, though some states provide more time. The second deadline limits the time you and your employer have to file a workers’ comp claim. This limit ranges from 90 days to 3 years, with some states extending the deadline to 6 years in certain situations.

Once you file a report, your employer must provide you with the necessary paperwork. In most states, they handle the filing process on your behalf. If you need medical treatment, it’s important to tell the doctor that you’ll be filing a workers’ comp claim. This ensures that bills and paperwork are sent to the correct place.

Workers’ Comp for Self-Employed Professionals

If you’re a self-employed sole proprietor or independent contractor, most states don’t require workers’ compensation insurance — though you usually can purchase it for yourself. There are exceptions in some states for sole proprietors and independent contractors who work in high-risk professions. If you’re self-employed and take compensation as a W2 employee, you may be required to buy coverage under state law.

What Are the Different Types of Workers’ Compensation Insurance?

Depending on the state, employers may be able to choose from commercial workers’ comp insurance policies, self-insurance, or state-administered funds.

  • Commercial policies: To maintain a commercial policy, employers pay monthly premiums. Insurance providers must ensure that each policy meets state-mandated coverage minimums. Providers can also offer benefits that go above and beyond basic requirements, but they may come at a higher cost.
  • Self-insurance: Self-insurance means that a company pays for the costs arising from a work-related incident. In states where this is an option, employers must apply for approval and prove they have the financial reserves to cover medical costs, death benefits, and wage replacement as mandated by the state.
  • State-run program: Some states operate a workers’ compensation insurance fund. In four states — Ohio, North Dakota, Washington, and Wyoming — participation is mandatory. A few other states offer optional participation. The agency that administers the state’s workers’ compensation program usually determines premiums using a standard formula.

What Are Common Workers’ Compensation Benefits?

Every state has the freedom to mandate the specific benefits workers’ compensation policies must offer. These benefits usually include salary replacement, medical cost coverage, and survivor benefits.

Salary Replacement

Salary or wage replacement ensures that you receive part of your typical compensation when a work-related injury or illness renders you unable to work. Your state determines the exact percentage that insurers must cover. It may also set a maximum per-week limit on how much you can receive. About one-third of states put a time limit on how long you can receive benefits.
If you’re completely disabled, even for a short period, you could get up to two-thirds of your normal salary. Some states offer more; in Maine, you’re entitled to 80% of your after-tax wages. Most states base benefits on your average weekly income over the preceding year.

Most states offer additional compensation when a work injury results in the permanent loss of a body part. For example, if you lose a thumb in Michigan, state law entitles you to receive 80% of your after-tax income for 65 weeks.

Health Benefits

One of the key benefits of workers’ compensation insurance is coverage of medical costs. Many policies cover “reasonable and necessary” medical and surgical care related to a workplace incident. Some states allow you to see your existing doctor, regardless of their network status. If you need to travel to seek appropriate care, the policy may also reimburse your expenses. If you need rehab or ongoing care, most states require workers’ comp to cover the costs.

State regulations often specify coverage requirements. Insurance providers usually need to pay to repair or replace things like dentures, hearing aids, and eyeglasses.

To protect employees, many states require healthcare providers to send the bills to the insurance company or employer. When that’s not the case, employees must submit bills to their employers.

Survivors Benefits

Survivors benefits, also called death benefits, help pay for your funeral expenses if you pass away due to a work-related incident. They may also include cash benefits for your family and educational benefits for your dependent children.

Many states offer at least $5,000 for funeral expenses, though this number may be significantly higher. Cash benefits, which are designed to help replace the deceased worker’s wages, usually total two-thirds of the employee’s average weekly wage. This compensation is often available to spouses and dependent children up to a certain date or a maximum benefit. In some states, spouses cannot receive compensation if they get remarried, or their income rises above a predetermined level.

Do Workers’ Compensation Benefits Vary From State to State?

Workers’ compensation benefits can vary considerably from state to state. These variations often occur in a few key areas:

  • Funeral benefits
  • Survivors benefits
  • The maximum weekly wage-replacement benefit
  • The maximum duration of wage-replacement benefits

For example, Iowa has one of the highest maximum weekly benefits in the United States. In 2022, workers can receive up to $2,005 per week if their workers’ comp claim involves a temporary total disability, permanent total disability, or a healing period. For a permanent partial disability, the maximum weekly benefit is $1,845.
By contrast, Mississippi has one of the lowest maximum weekly benefits. In 2022, employees can receive up to $551.02 per week.
The duration of wage replacement can also vary. Most states offer compensation for as long as the employee is out of work. Of the states that limit compensated weeks, Florida has the shortest maximum duration at 104 weeks. Louisiana stops benefits after 520 weeks.

How Does a Workers’ Comp Claim Work?

A workers’ comp claim is triggered when an employee reports an injury or health condition. The employer usually has 1-5 days to file an initial claim with their insurance provider. Some states require employers to file a report with the workers’ compensation agency. Once a claim is filed, the employer should communicate with the provider and the employee about benefits, healthcare, and returning to work.

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How Much Does Workers’ Compensation Insurance Cost?

The costs of workers’ compensation insurance are different in every state. In 2019, Texas businesses had the lowest costs — for every $100 of covered wages, employers paid $0.52, according to the National Academy of Social Insurance. The most expensive workers’ compensation insurance was in Wyoming, where employers paid $1.98 per $100 of covered wages.

Workers’ comp costs per $100 of covered wagesNumber of states (including Washington, D.C.)
$0.50 – $0.9919 (37.25%)

Arizona, Arkansas, Colorado, District of Columbia, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, Nevada, New Hampshire, North Carolina, Ohio, Tennessee, Texas, Utah, and Virginia

$1.00 – $1.4923 (45.1%)

Alabama, Connecticut, Delaware, Florida, Georgia, Iowa, Louisiana, Maine, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New Mexico, New York, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Washington, and Wisconsin

$1.50 – $2.009 (17.65%)

Alaska, California, Hawaii, Idaho, Montana, South Carolina, Vermont, West Virginia, and Wyoming

When calculating the cost of premiums, insurance companies use factors such as the size of the payroll, the industry, and the level of risk. Employers may pay different rates for different jobs. State regulations also impact costs.

Who Pays Workers’ Compensation Insurance Premiums?

Employers are responsible for paying the premiums for workers’ compensation. Employees don’t pay, either directly or through payroll deductions. By covering premiums, employers can avoid getting sued for compensation by employees who are hurt on the job.

Where Can You Get Workers’ Compensation Insurance?

In most states, you can buy workers’ compensation insurance policies from commercial insurance providers. As with any other type of insurance, it’s important to shop around to find the right balance of price and benefits. If your state mandates participation in a state-administered insurance fund, you should typically apply directly through the state workers’ compensation agency. You should also contact the agency to apply for self-insurance.

Key Takeaways About Workers’ Compensation Insurance

Workers’ compensation insurance is designed to protect employees when they’re injured or taken ill as a result of their job. It also protects employers by covering costs and reducing the risk of lawsuits.

Here are a few things to remember about workers’ compensation:

  • Workers’ compensation insurance covers medical costs, lost wages, and death benefits.
  • All states except Texas mandate workers’ compensation insurance once businesses reach a certain number of employees.
  • State law determines coverage minimums and claim deadlines.
  • Employers pay for workers’ compensation insurance; employees don’t have a financial obligation.
  • Workers’ comp premiums and benefits vary from state to state.
  • Employers are usually responsible for filing workers’ compensation claims.
  • Employees are almost always covered by workers’ comp insurance from their first day, regardless of employment status; states occasionally have coverage exceptions.
  • Employees should report incidents to employers quickly and notify medical professionals that the injury or illness is work-related.

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