Most states in the U.S. require businesses to purchase workers’ compensation insurance.
This valuable coverage pays employee healthcare costs if they become injured or ill because of on-the-job reasons. It also covers short and long term disability, along with missed wages, while a worker is recovering. It also typically pays for funeral expenses and death benefits if someone passes away for work related reasons. It can also provide training if someone is unable to return to a former job because of their injury or illness and needs to find a new type of work to do.
The good news for employers is that if you have workers’ comp coverage on your employees, it is highly unlikely that they will be able to sue you over a job-related illness or injury, even if you were negligent and caused the issue that injured them or made them ill. These suits could be for a million dollars or more, which you would be forced to pay out of pocket.
Certain states have exceptions for the requirement to get workers comp coverage. These can include:
- Number of employees
- How many hours they work
- How much they earn
- Whether they are independent contractors
- Location where they work
- Relationship to the business owner
- Structure of business.
If you’re not sure whether your business is exempt from providing workers’ comp insurance, here’s an overview of the workers’ compensation rules and exemptions for the ten largest states in the U.S.
Who is exempt from workers comp insurance in California?
California is one of the strictest workers’ comp states. It only allows two exemptions to getting the coverage:
- Sole proprietors who decide they don’t want it
- Employers who are allowed to self-insure.
Who is exempt from workers comp insurance in Texas?
- In the state of Texas, employers are not required to carry workers’ compensation coverage, except for private employers who are contracted to work with the government.
Who is exempt from workers comp insurance in Florida?
In Florida, businesses that have four employees or more must carry workers’ compensation insurance. Some exceptions include:
- Businesses in the construction industry must provide coverage if they have one or more employees (this is an industry, not a state, requirement)
- Agriculture businesses don’t have to provide coverage unless they have six or more regular employees and / or 12 seasonal ones
- Independent contractors don’t need to get coverage.
There are more nuances and details of workers comp insurance exemptions in Florida. You can learn more here.
Who is exempt from workers comp insurance in New York?
All employers in New York state are required to provide workers’ comp coverage. Some exemptions include:
- Certain real estate salespeople, media sales representatives, insurance agents and brokers who work under a contract that defines them as independent contractors
- Coaches and supervisors of athletic teams operated on a nonprofit basis as long as they aren’t professional athletes or work for a professional athletic organization
- People who volunteer their time and services to nonprofit organizations and are not compensated for it
- People who work in religion, including:
- Duly ordained, commissioned, or licensed ministers, priests, and rabbis
- Christian Science readers
- Members of religious orders
- Federal government workers covered under federal workers’ compensation laws
- Interstate railroad employees that are covered by another workers’ comp system
- New York City police officers, firefighters, and sanitation workers who are covered by the New York State General Municipal Law
- People who teach at nonprofit religious, charitable, or educational institutions
- People who do non-manual work for nonprofit religious, charitable, or educational institutions
- Persons who receive charitable support from a religious or charitable institution and do work in return for it and are not under contract to perform the tasks
- People who work in certain maritime trades
- People, including minors, who do yard work or other chores for pay in and around one-family, owner-occupied homes or for nonprofit, noncommercial organizations
- Sole proprietors, partners, and one or two person corporate offices that have no one else providing business services to the organization.
- Spouses and minor children of farmers, as long as they are not contracted to work for the farm business.
Who is exempt from workers comp insurance in Pennsylvania?
Pennsylvania employers with one or more people working for them must provide coverage. There are some exemptions for:
- Casual workers
- Certain agricultural laborers
- Domestic workers who are not covered under the Workers’ Compensation Act
- Executive officers who have been granted an exemption by the Pennsylvania Department of Labor and Industry
- Federal government employees
- Licensed real estate people or associate real estate brokers
- People who have been granted exemption due to religious beliefs by the Pennsylvania Department of Labor and Industry
- Railroad workers
- Sole proprietors, partners, and corporate officers.
Who is exempt from workers comp insurance in Illinois?
In the state of Illinois, if you have a single employee, even a part-time one, you must purchase workers’ compensation insurance. The only exceptions are for:
- Real estate agents
- Sole proprietors, partners in a business partnership, and corporate officers.
Who is exempt from workers comp insurance in Ohio?
All employers in Ohio must provide coverage. Exemptions to this include:
- Family farm corporate officers
- Individuals incorporated as a corporation with no employees
- Limited liability companies that act as partnerships or sole proprietorships
- Sole proprietors
- Ordained or associate ministers of religious organizations.
Who is exempt from workers comp insurance in Georgia?
Businesses with three or more employees in Georgia are required to carry workers’ comp coverage. The only exemptions to this are sole proprietors and partners in a partnership.
Who is exempt from workers comp insurance in North Carolina?
All North Carolina employers with one or more people working for them must provide coverage. Exemptions include:
- Casual employees
- Certain agricultural product sellers and producers
- Certain railroad workers
- Domestic workers employed directly by a household
- Farms with fewer than ten full-time, non-seasonal farm laborers who are regularly employed by the same farm
- Federal government workers
- Sole proprietors, partners, and corporate officers.
Who is exempt from workers comp insurance in Michigan?
All employers regularly employing one or more employees 35 hours or more per week for 13 weeks or longer during the preceding 52 weeks must provide workers compensation insurance coverage. Exemptions include:
- Agricultural employees who work for businesses with fewer than three employees putting in less than 35 hours per week
- Domestic employees that work for a household with fewer than three domestic workers putting in less than 35 hours per week.
If your business isn’t exempt from getting workers’ comp insurance, take steps today to get the coverage you need. If you don’t have required coverage, employees could sue you over a work related illness or injury and you could face state fines and other legal consequences. Check out this article to find out how to get the coverage you need at a fair price.
Workers comp insurance for the self-employed or independent contractors
The self-employed or independent contractors are not required to have workers comp insurance. However, it is highly advisable that they should have workers comp insurance to protect themselves in case they are injured or become ill while being on the job, especially if their work is considered high risk such as construction consultants or roofers.
There are several nuances in the workers comp insurance for the self-employed and independent contractors. Learn more at workers comp insurance for the self-employed: everything you need to know and the best workers comp insurance for independent contractors.
What does workers compensation insurance cover?
Worker’s comp insurance helps cover:
- Accidents and injuries: Workers’ compensation pays medical costs if an employee gets injured on the job
- Illness: If a worker is exposed to harmful chemicals or allergens in the workplace that cause an illness, their medical care is covered by workers’ comp
- Lost wages: A work-related injury or illness often forces employees to take time off. Workers’ comp helps replace the lost wages of injured or sick employees while they’re recovering
- Ongoing care: If a workplace injury or illness requires an employee to need long term care, such as physical therapy, workers’ compensation will pay for the treatment
- Funeral costs: If an employee passes away because of a job-related incident, workers’ comp pays funeral costs up to a certain limit
- Repetitive injury: If a worker is injured because of ongoing repetitive job related strain, such as carpal tunnel syndrome, workers’ comp will pay for therapy
- Disability benefits: If an injury is so severe an employee never returns to work, or doesn’t for a long time, workers’ comp will pay medical costs and some lost wages over the long term.
How much does workers comp insurance cost?
Small business owners pay an average of $47 a month or $564 a year for workers compensation insurance. Construction pays the most, at an average rate of $3,264 a year, and accountants pay the least, at $396 a year.
Most small businesses pay between $400-$800 a year for an employee for workers comp insurance.
Workers comp insurance cost depends heavily upon multiple factors including payroll, industry, location, claims history, and more. Classification code for each employee plays a very important role in the cost of workers comp insurance.
How to get workers comp insurance?
Depending on where your business is located, businesses in different states have different options to buy workers comp insurance:
- in some states businesses have to buy from the state fund;
- in some states, businesses can choose between the state fund and private insurance companies;
- in other states, businesses can only buy from private insurance companies
Learn more at How to Get Workers Comp Insurance?
How to find the cheapest workers comp insurance for your small business?
The most important thing you can do to save money is make sure you’re using the right class code for every employee. Some class codes have much higher rates than others. Also remember to update the codes if an employee is promoted or changed jobs within your company.
You can also save money by providing a safe workspace for employees, so they won’t get injured. Make sure you establish the workplace safety standards and best practices for your company. Some insurance companies will provide a risk management assessment, which is worth taking advantage of.
You could also consider pay-as-you-go workers compensation insurance, which might save you money. It’s based on your actual payroll, rather than estimated payroll. So, if three people quit one month, your rate will be lower for that month.