If you have employees, you almost certainly need workers' compensation insurance. The details depend on your state: how many employees trigger the requirement, whether owners can opt out, and how your industry is treated. Texas is the one state where private employers can legally go without it. Construction and property development face tighter rules than most other fields.
This guide explains who needs coverage, who is exempt, where contractors get caught out, and what to check before your next hire. It uses Massachusetts as the worked example, because that is where we write most of our policies, and it points out where other states differ.
TL;DR
- Nearly every state requires employers to carry workers' comp, but the employee count that triggers the rule varies by state.
- Massachusetts has no minimum: every employer must cover its employees, however few hours they work.
- Owners of LLCs, partnerships and sole proprietorships can usually skip coverage for themselves, but not for their employees.
- Calling someone a 1099 contractor does not settle anything. Control over the work decides, and misclassification can bring heavy penalties.
- General contractors should verify every subcontractor's certificate before work starts, or risk paying for their workers' injuries.
Table of Contents
- Who needs workers' compensation insurance
- How the employee threshold changes by state
- Texas: the one state where coverage is optional
- Who is exempt from workers' comp requirements
- Massachusetts: what local employers need to know
- Contractors and developers: the rules are tighter
- What workers' comp actually pays
- Our perspective: what we see when employers get this wrong
- A checklist before you hire
- Get a workers' comp quote from an independent agency
- FAQ
- Sources
Who needs workers' compensation insurance
The short answer: any business with employees. Workers' comp pays medical bills and part of lost wages when an employee is hurt or made ill by work, and it does so whoever was at fault. In return, an employer with valid coverage is generally protected from lawsuits by the injured employee, according to Legal Aid at Work's overview.
Three things decide whether you are required to carry it:
- Your state. Each state writes its own law. Almost all require coverage once you hire an employee, while some wait until you reach a set headcount.
- Who works for you. Employees must be covered. Owners and true independent contractors usually need not be.
- Your industry. Construction is often held to a stricter standard than office-based work.
Because the rule is written state by state, the same business can be required to carry coverage in one state and not in the next. If you hire in more than one state, check each one separately.
How the employee threshold changes by state
Most states trigger the requirement at your first employee. Some set a higher bar. Gusto's state-by-state table lists the minimum number of employees in each state and links to each state agency. A few examples drawn from that kind of listing:
| State | When coverage is generally required |
|---|---|
| Massachusetts | Every employer, regardless of employee count or hours worked |
| Alabama | At 5 employees |
| Arkansas, Wisconsin | Generally at 3 employees |
| Florida | At 4 employees; construction employers at 1 |
| Texas | Optional for most private employers |
Thresholds change when legislatures act, so treat any table, including this one, as a starting point. Confirm with your state workers' compensation agency before you rely on a number. If you are close to a threshold, buying coverage early costs little compared with an uninsured claim.
Some states also require you to buy through a state-run fund rather than a private carrier. Ohio, North Dakota, Washington and Wyoming work this way. If you operate there, an independent agent can still help you with the rest of your program, but the workers' comp policy itself comes from the state.
Texas: the one state where coverage is optional
Texas lets most private employers choose. According to this Texas payroll guide, it is the only state where private employers are not required to carry workers' comp. Employers who carry it are called subscribers. Those who opt out are non-subscribers, and they must file notice with the Texas Department of Insurance, Division of Workers' Compensation, and post notice for employees.
Opting out comes with a price. The same guide explains that non-subscribers lose important common-law defenses if an injured employee sues. In practice, going without coverage can expose a small business to a single lawsuit it cannot absorb. Even in Texas, many general contractors and project owners require subcontractors to carry coverage as a condition of the job.
Who is exempt from workers' comp requirements
Exemptions are where most of the confusion sits. They are narrower than people hope.
Business owners
In Massachusetts, owners of LLCs, partnerships and sole proprietorships are not required to buy workers' comp for themselves, but they must still cover every employee who is not a member of the business. That comes from the Department of Industrial Accidents' employer's guide. Corporate officers are treated differently, and the state's coverage requirements page says an employer must carry insurance for itself if it is an employee of its own company.
Before you opt out for yourself, check your personal health insurance. Many health plans exclude work-related injuries, so an owner who skips workers' comp may be uninsured for the most likely kind of accident. Sole proprietors and partners who run physical jobs should weigh that carefully.
Independent contractors
True independent contractors are generally not covered by your policy. But the label on the paperwork does not decide it. As Nolo explains, courts look at how much control the business has over the work. If you set the schedule, supply the tools and dictate the methods, the worker may legally be your employee even if you pay them on a 1099.
Misclassifying employees as contractors to avoid premiums can lead to fines and even criminal prosecution, per the same source. A quick self-test:
- Does the worker set their own hours and methods?
- Do they bring their own tools and equipment?
- Do they work for other clients too?
- Do they invoice you as a business, with their own insurance?
If most answers are no, treat the person as an employee.
Household and domestic workers
Massachusetts treats domestic employees who work at least 16 hours a week as covered, according to one employers' association. If you hire a nanny or home health aide, ask your agent how your home policy and a workers' comp policy fit together. Your state's rule may differ.
Homeowners hiring for a project
In Massachusetts, being the owner does not automatically exempt you. But an owner of a dwelling with no more than three apartments, who lives there, is generally not treated as an employer when hiring for maintenance or construction. The state's affidavit guidance for builders and contractors adds that building permit offices can withhold permits until they receive proof of insurance or a signed affidavit of exemption. Check with your local permit office before you sign the form.
Massachusetts: what local employers need to know
Massachusetts is one of the strictest states, and it is our home market. The state requires all employers operating there to carry coverage for their employees, no matter the number of employees or hours. That means one part-time worker triggers the rule.
Three practical points for a Newton, Arlington or Boston-area business:
- Out-of-state certificates may not count. A certificate that does not show Massachusetts coverage is not acceptable under the state's rules.
- Public work needs proof. A company that wants to do public work in Massachusetts must hold a current policy showing Massachusetts coverage, as the state's DCMS tip sheet spells out.
- Post your carrier. Employers are expected to post the name of their carrier where employees can see it, and one employer association notes a $100 fine for failing to do so.
We cover this in more depth in our guide to workers' compensation insurance for Arlington employers and in our piece on why your business needs workers' comp.
Contractors and developers: the rules are tighter
Construction work is hazardous, so regulators watch it closely. Florida requires coverage from the first employee for construction businesses, where other industries wait until four. Massachusetts requires it for everyone anyway, and building departments check it when you pull a permit.
The biggest trap is the subcontractor chain. General contractors and developers are often held responsible for their subs' coverage. If a subcontractor has no insurance and a worker is hurt, your own policy can end up paying for that person.
Verify the certificate, not just the paper
A certificate of insurance (COI) is a summary, and a generic form does not prove the sub is covered where you are working. Before any sub sets foot on site:
- Ask for the certificate and the policy information page showing coverage in your state.
- Confirm the policy period covers the whole job.
- Check that the named insured matches the company you are actually hiring.
- Keep a copy in the project file, and re-check when the policy renews mid-job.
This checklist pairs well with this explainer on certificates and contractor liability, which covers general contractor liability for subcontractors on investment projects. For our own take, see subcontractor insurance requirements for US contractors and our construction project insurance setup guide.
Workers' comp is also only one layer of a job's insurance. It does not cover damage to the building under construction, your general liability exposure or your equipment. Those sit in other policies, such as general liability for contractors and builders risk.
What workers' comp actually pays
Knowing what the policy does helps you see why the law is written as it is. Benefits vary by state, but typically include:
- Medical care: reasonable treatment costs for the injury or illness.
- Wage replacement: often around 60 to 66 percent of average weekly wages, after a waiting period that is commonly 3 to 7 days, per Legal Aid at Work.
- Rehabilitation and disability benefits: support when the worker cannot return right away or permanently.
Benefits are paid regardless of fault and are generally tax-free. Injuries caused by intoxication, self-inflicted acts or incidents on personal time are typically not covered. For a plain-language look at how these benefits compare with a personal injury claim, see this comparison of workers' comp and personal injury.
If someone outside your company, such as an equipment manufacturer, caused the injury, the worker may also sue that third party. Your carrier will often hold a lien on any settlement. Washington's Department of Labor & Industries explains that third-party recovery law is meant to shift the cost of the injury to the party truly responsible. A worker should coordinate any settlement with the carrier first, because settling without its consent can put future benefits at risk. For anything involving a lawsuit, talk to an attorney licensed in your state.
Our perspective: what we see when employers get this wrong
We are an independent agency in Arlington, MA, with more than 30 years in the business, and we shop several carriers for each client. Workers' comp rarely goes wrong because an owner ignored it on purpose. It goes wrong in quieter ways.
The first is the "he's a 1099" assumption. A small contractor brings in a helper for a season, pays by check, and never thinks of him as an employee. Then the helper falls from a ladder. The rule of thumb we give clients: if you direct how, when and with what tools the work gets done, plan on covering the person.
The second is the certificate that looks fine. A sub's paperwork shows general liability and a workers' comp line, but nobody checks that it applies in the state of the job. The general contractor finds out after the claim.
The third is the first hire. A business owner hires a part-time bookkeeper and assumes coverage can wait until "real" staff arrive. In Massachusetts, that bookkeeper counts from day one.
Our advice is to call before you hire, not after. It takes one conversation to confirm what your state requires, what your industry rate looks like and whether a business owner's policy or other coverage should sit next to workers' comp. That is easier to do before an injury than after one.
— Mike
A checklist before you hire
- Find your state's rule. Look up the employee threshold and any industry-specific rules with your state workers' compensation agency.
- Classify each worker honestly. Use the control test, not the tax form.
- Decide about owner coverage. If you are exempt, check whether your health plan excludes work injuries.
- Collect subcontractor proof. Get certificates and policy pages that show coverage in your state.
- Post required notices. Many states require employers to post the carrier's name or similar notices.
- Plan for cost. Premiums depend on payroll and job classification. Our look at small business insurance costs shows how to prepare for a quote.
- Review the rest of your coverage. Pair workers' comp with employers liability, general liability and property coverage as your business needs.
Get a workers' comp quote from an independent agency
We help employers and contractors across several states build coverage that matches how they really work. Because we are independent, we compare carriers instead of selling one company's product. Tell us your state, payroll and trade, and we will explain what you must carry and what is worth adding. Start on our business insurance page, or request a free quote. Contractors who need single-project protection can also ask about same-day binding on builders risk.
FAQ
Do I need workers' comp if I only have one part-time employee?
In Massachusetts, yes. Every employer must cover its employees regardless of the number of hours worked or the total headcount. Other states set a higher threshold, so check your state agency before you decide.
Can I exclude myself as an owner?
Often you can. In Massachusetts, owners of LLCs, partnerships and sole proprietorships are not required to buy coverage for themselves, though they must cover their employees. Before you opt out, check whether your health insurance excludes work-related injuries.
Do I need to cover independent contractors?
Generally not, if they are truly independent. The deciding factor is control: if you set their schedule, tools and methods, they may legally be employees even with a 1099. Misclassification can result in fines and potential criminal prosecution.
Is workers' comp required in Texas?
Not for most private employers. Texas lets them opt out and become non-subscribers, who must file notice with the state and post notice for employees. Opting out means losing certain legal defenses if an injured worker sues.
What happens if my subcontractor has no coverage?
You may end up responsible. General contractors are often held liable for uninsured subs' employees, and your own policy may pay the claim. Ask for proof that shows coverage in your state before work begins.
Sources
- Workers' Compensation Insurance Requirements, Mass.gov
- Employer's Guide to Workers' Compensation, Mass.gov
- Affidavits for Builders, Contractors, Plumbers and Electricians, Mass.gov
- DCMS Tip Sheet: Worker's Comp, Mass.gov
- Exemptions From Workers' Compensation Coverage, Nolo
- Workers' Compensation Overview, Legal Aid at Work
- Workers' comp requirements by state, Gusto Help Center
- Texas Workers' Compensation guide, Texas Payroll Guide
- Massachusetts Workers' Compensation Insurance, Employers
- Third Party Claims for Attorneys, Washington L&I