Is workers' compensation insurance required?
Yes — in almost every US state, workers' compensation insurance is legally mandatory as soon as your business has employees. It is regulated at the state, not federal, level, so the exact trigger varies, and Texas is the well-established exception where private employers can elect to go without.
This is an independent guide from QuoteSweep, which maps the modern commercial insurance landscape. Every legal claim below is attributed to its source so you can see exactly which authority stands behind it — and where you still need to confirm the specifics with your own state.
TL;DR: If you have employees, assume you're required to carry workers' comp. NerdWallet and Insureon name Texas and South Dakota as the only two states with no across-the-board mandate — NerdWallet writes "every state except Texas and South Dakota requires companies to carry workers' compensation insurance." Texas is the clear exception: private employers there can elect to be a "non-subscriber." The mandate is set by state law, not a single federal statute (SBA). If you work alone with no employees, it's usually not required — but clients, general contractors, and lenders frequently require it by contract anyway (Insureon; SBA). Exact employee-count thresholds and penalties vary — confirm with your state.
Is workers' compensation insurance required?
For almost every business with employees, yes. Workers' comp is regulated at the state level, so the trigger and thresholds vary state to state — but the near-universal rule is that coverage becomes mandatory once you have employees.
The two most-cited independent sources agree on the exceptions. NerdWallet states plainly: "Every state except Texas and South Dakota requires companies to carry workers' compensation insurance." Insureon similarly names Texas and South Dakota as the two states without a blanket mandate. Of those, Texas is the well-established exception — private employers there can elect to go without coverage as a "non-subscriber." (Sources conflict on South Dakota, so if you operate there, verify directly with the South Dakota Department of Labor & Regulation.)
If you have no employees and work alone, it is usually not legally required. But that's not the end of the story: a client, general contractor, or lender may require it by contract regardless (Insureon; SBA).
When you need it / who it applies to
The dividing line is employees. Here's who is typically in and who is typically out — confirm the details with your state, because the rules vary.
Businesses with employees — usually required from the first hire. Most states require coverage from the first employee, full-time or part-time, and family members can count. The SBA says workers' comp is "required in most states for businesses with one or more employees, regardless of whether they're full-time or part-time" (SBA).
Owners — often exempt or optional to include. Sole proprietors, partners, and LLC members who are not themselves employees are typically not covered by default; the SBA notes they are "usually not covered," though "state law may allow them to opt in." Corporate officers can often exclude themselves, depending on the state and your entity type (Insureon).
Independent contractors — generally not covered. True contractors usually aren't covered by your policy. But states audit for worker misclassification and penalize employers who wrongly label employees as contractors (NerdWallet). Getting this wrong can create both a coverage gap and a penalty.
Solo self-employed owners with no employees — usually not required, but often bought anyway. If it's just you, you generally aren't legally required to carry it — but many solo owners buy it anyway, either to win contracts or because their health insurance excludes on-the-job injuries (Insureon).
What the law (or your contract) requires
Three separate things can require you to carry workers' comp: state law, federal law (for a narrow set of workers), and private contracts. Most small businesses are governed by the first.
State law is the primary requirement. Each state's workers' comp statute — administered by that state's workers' comp board or department of insurance — sets the mandate. There is no single federal law that requires private employers to carry it. The SBA puts it directly: "if you own a business with at least one employee and are not covered by a federal program, most state laws require you to have workers' compensation insurance."
Federal law applies only to specific worker categories — not to ordinary private employers. The Federal Employees' Compensation Act (FECA), administered by the DOL Office of Workers' Compensation Programs, covers federal and postal employees. Separate federal programs cover longshore and harbor workers, coal miners (black lung), and federal-contract employees working overseas (the Defense Base Act). If you're a private employer, you don't use these — you follow your state's system.
Contracts are a third, very common trigger. Even where the law doesn't require it — for example, a solo owner with no employees — clients, general contractors, commercial landlords, and lenders frequently require proof of workers' comp before they'll sign. That includes lenders for SBA loans (Insureon; SBA). If a partner asks for a certificate of insurance, the contract — not the statute — is what's driving the requirement.
Because triggers are state-specific, confirm your state's rule with its workers' comp board or department of insurance rather than assuming. For how the liability piece fits alongside the medical-benefits piece, see employers liability vs workers' comp.
What happens if you don't have it
The consequences of going without required coverage are steep, and they stack.
You lose exclusive-remedy immunity. Normally, workers' comp limits an injured employee to comp benefits — that's the legal shield employers get in exchange for carrying coverage. An uninsured employer typically loses that shield, so an injured worker can sue you directly in civil court for unlimited damages (Insureon; NY WCB).
You can be shut down. States issue stop-work orders that halt your business until you obtain coverage (California DIR; NY WCB §141-a).
You face fines, back-premium penalties, and — in many states — criminal liability. The specifics vary sharply by state:
- California — Operating without coverage is a misdemeanor under Labor Code §3700.5, punishable by a fine of at least $10,000 and/or up to one year in county jail. The state also assesses a penalty of the greater of twice the unpaid premium or $1,500 per employee, plus penalties up to $100,000 against illegally uninsured employers (California DIR; Stimmel Law, citing the Labor Code).
- New York — For 5 or fewer employees, non-compliance is a criminal misdemeanor with a $1,000–$5,000 fine; for more than 5, it's a Class E felony with a $5,000–$50,000 fine. On top of that, there's a civil penalty of $2,000 for every 10-day period of non-compliance and possible stop-work orders (NY Workers' Compensation Board).
Penalty structures differ by state — confirm the specific amounts with your state's agency before you rely on any figure.
How the requirement varies by state
A few state-level variations are worth knowing before you assume a single rule applies to you:
- The exceptions. Texas does not require private employers to carry workers' comp at all — it uses an elective "non-subscriber" system, though non-subscribers lose their lawsuit protections and must report to the Texas Department of Insurance. NerdWallet and Insureon also list South Dakota as having no blanket mandate, but sources conflict on South Dakota — verify with the SD Department of Labor & Regulation.
- Employee-count thresholds. Most states require coverage at 1 employee, but several set higher floors. Commonly cited examples include Alabama (5), Arkansas (3), Florida (4 general / 1 construction), Georgia (3), Mississippi (5), Missouri (5 general / 1 construction), New Mexico (3), North Carolina (3), South Carolina (4), Tennessee (5 general / 1 construction & mining), Virginia (2), and Wisconsin (3), aggregated from The Hartford and OnPay state guides. Construction, roofing, and coal/mining almost always trigger at 1 employee.
- Monopolistic state funds. In North Dakota, Ohio, Washington, and Wyoming you can't buy from a private carrier — you must purchase from the state fund (NerdWallet).
- Special-category exemptions. Agricultural, domestic/household, and casual workers are frequently exempt or covered under special rules, though the specific carve-outs vary by state (The Hartford; OnPay).
Don't treat any single threshold as final without checking the current state statute.
Get covered
If you're required to carry it — or a contract is forcing your hand — these are profiled workers' comp insurtechs you can compare. Compare all of them side by side on the workers' comp insurtech hub.
Pie
Pie prices workers' comp with a proprietary data model and, since 2023, underwrites it itself (AM Best A-). It quotes in about three minutes, sells direct or through agents, and writes in 39 states plus DC. Best if you want fast, data-priced coverage with the option of an agent.
Cerity
Cerity is the direct digital workers' comp brand of EMPLOYERS, a century-old workers' comp specialist. You get an instant quote, monthly payments, and cancel-anytime flexibility — the insurtech experience with an established carrier behind it. Best if you want low-commitment coverage from an established carrier.
Hourly
Hourly runs payroll and workers' comp on one platform, so your premium is billed on real wages each pay run — no big deposit, no year-end audit surprise. Best if you have hourly or variable payroll and want pay-as-you-go workers' comp.
biBERK
biBERK sells workers' comp direct as part of the Berkshire Hathaway Insurance Group, on A++ (Superior) rated carriers. Best if you want direct coverage with maximum financial strength behind it.
Frequently Asked Questions
Is workers' comp required if I have no employees?
Usually not. If you work alone with no employees, you generally aren't legally required to carry it (Insureon). But clients, general contractors, and lenders — including for SBA loans — often require it by contract anyway, so many solo owners buy it to win work (Insureon; SBA).
Which states don't require workers' compensation insurance?
NerdWallet and Insureon name Texas and South Dakota as the only two states with no across-the-board mandate — NerdWallet writes "every state except Texas and South Dakota requires companies to carry workers' compensation insurance." Texas is the clear, well-established exception via its "non-subscriber" system; sources conflict on South Dakota, so verify with the state directly.
Is workers' comp a federal or state requirement?
It's primarily state law. Each state's workers' comp statute sets the mandate, and the SBA says most state laws require it if you have at least one employee and aren't covered by a federal program. Federal programs like FECA cover only specific categories — federal and postal employees, longshore workers, coal miners, and overseas federal contractors — not ordinary private employers (SBA; DOL OWCP).
What happens if I don't carry required workers' comp?
You typically lose exclusive-remedy immunity, so an injured worker can sue you directly for unlimited damages, and you can face stop-work orders, fines, back-premium penalties, and criminal liability (Insureon; NY WCB; California DIR). In California it's a misdemeanor with a fine of at least $10,000; in New York it can be a felony with fines up to $50,000. Penalties vary by state — confirm with your state agency.
The bottom line
If you have employees, assume you're required to carry workers' comp — in almost every state you are, and it's state law that sets the rule (SBA; NerdWallet; Insureon). Texas is the well-established exception, and both NerdWallet and Insureon add South Dakota as the only other state without a blanket mandate. If you work alone, it's usually not required by law, but a client, general contractor, or lender may require it by contract. Exact thresholds and penalties vary by state, so confirm the specifics with your state's workers' comp board before you rely on any single number — then compare coverage on the workers' comp insurtech hub.
