Why is workers compensation insurance required? Because states want an injured worker’s medical care and part of lost wages paid without a lawsuit, and in return the law normally limits lawsuits against the employer over covered injuries. The requirement applies to most employers, but the rules differ by state. In many states one employee is enough to require coverage, in others the line is higher, commonly three to five employees, and Texas is the only state where most private employers can choose.
Check your state’s rule before you hire your first employee. Get a Workers Comp Quote to find out what it would cost for your business, or read on to see why the requirement exists and what is at stake.
Why Workers’ Compensation Is Essential for Employers
1. It is a state requirement: nearly every state requires coverage, some from the first employee and some once a business reaches a higher employee count. Penalties for going without it vary by state.
2. It limits lawsuits: workers comp is normally the exclusive remedy, which usually bars an employee from suing the employer over a covered injury. Exceptions vary by state.
3. It pays for injuries: medical care, part of lost wages, disability benefits, and death benefits for injuries in the course and scope of employment, plus certain occupational illnesses.
4. It reaches beyond your payroll: most states treat uninsured contractors or subcontractors as your employees, so a missing certificate can become your problem.
Quick Facts
- Where it is required: Nearly every state, from the first employee in many and at a higher count in others
- Employee count: One in many states, commonly three to five in others
- Owners: In most states, sole proprietors and partners are not required to buy until they have employees, and may opt in
- Contractors: In most states, uninsured subcontractors are treated as your employees
- Who sets the rules: Each state
Why Is Workers Compensation Insurance Required? The Basic Deal
Workers’ compensation works as a trade. An employee hurt on the job gets medical care and part of lost wages, generally regardless of fault and without having to sue. In exchange, the employee normally cannot sue the employer over a covered injury. This is called the exclusive remedy, and exceptions vary by state. The benefits are listed in what workers compensation covers.
Myths About Workers’ Comp Requirements
Myth: Workers comp is optional for small businesses. In most states it is not. Many require coverage from your first employee and others set a higher line, so check your state’s rule before you hire.
Myth: Owners are covered automatically. In most states sole proprietors and partners are not required to buy coverage until they have employees, and owners can opt in. Ask your agent how your state treats owners.
Myth: Hiring a contractor means no responsibility. Most states treat uninsured contractors or subcontractors as your employees, so ask for a certificate of insurance before the work starts. More facts are in the post on workers compensation myths.
Who Must Carry It
The reason behind the law is the same everywhere, but who it applies to is not, as the table below shows. In most states sole proprietors and partners are not required to buy coverage until they have employees, though owners can opt in.
Ask how your state counts part-time and seasonal workers. Then look at contractors. Most states treat an uninsured contractor or subcontractor as your employee if that person is hurt on your job, so ask for a certificate of insurance before the work begins.
Employee Thresholds by State: Examples
The table shows how a handful of states draw the line. These are examples, so confirm with your state. They come from the NFIB state-by-state list, checked in November 2026, and that list also notes exceptions for owners, farm work and domestic workers that are not shown here.
| State | When coverage is required |
|---|---|
| California | One or more employees |
| Pennsylvania | One or more employees, regardless of hours worked |
| New Jersey | One or more employees |
| Ohio | One or more employees (coverage is bought through the state fund, not a private insurer) |
| Georgia | Three or more employees |
| North Carolina | Three or more employees |
| Florida | Four or more employees outside construction, one or more in construction |
| South Carolina | Four or more regular full-time or part-time employees |
| Tennessee | Five or more employees, and any number in construction or coal mining |
| Texas | Optional for most private employers |
Two things stand out. Construction is often held to a stricter rule than other industries, and part-time workers often count toward the total. In Texas, the NFIB list notes that construction companies on contract for governmental entities must still have coverage, and that employers who go without it could be liable in a civil suit.
How to Check Your State’s Rule
- Find your state’s workers compensation agency. It publishes the official rule and any exceptions.
- Count everyone on payroll. Include part-time, seasonal and family employees unless your state says otherwise.
- Check how owners and officers are treated. Some are counted, and some can opt in or out.
- Check your industry. Construction and a few other trades often have their own rule.
- Ask contractors for certificates of insurance. Do it before the work starts.
- Get a quote before the first hire. Premiums are based on your industry classification and payroll, and the insurer checks actual payroll later in a workers comp premium audit.
What Is at Stake Without It
“We run a safe shop, so why do we need it?” is a fair question from the owner of a quiet shop. The answer is that injuries happen in safe workplaces too, and the law does not wait for one. Penalties for going without required coverage vary by state, and so does an employer’s liability for an injury. A short example shows how it plays out.
Picture an employee who slips in a warehouse and hurts a shoulder. With a policy in place, the claim goes to the insurer, which pays covered medical care and part of the lost wages. Without one, that bill can land on your business, and your state may add penalties of its own. The workers’ comp claim filing process shows what happens after an injury is reported.
Frequently Asked Questions
At what employee count does workers’ comp become required?
It depends on the state. In many states one employee is enough, in others the line is higher, commonly three to five, and Texas is the only state where coverage is optional for most private employers. Check your state’s number with your state’s workers compensation agency.
Can an employee sue me directly if I have workers’ comp coverage?
Workers comp is normally the exclusive remedy, which usually bars lawsuits over covered injuries. That limit on lawsuits is one of the main reasons the system exists. Exceptions exist and vary by state, so do not assume coverage ends every dispute.
Is workers compensation insurance required in Texas?
Texas is the only state where coverage is optional for most private employers. The NFIB state list notes that construction companies on contract for governmental entities must have it, and that Texas employers without coverage could be liable in a civil suit. Confirm the details with the state before you decide.
What penalties apply for operating without required coverage?
Penalties vary by state, so ask your state’s workers compensation agency what applies where you operate. Remember too that without a policy, the cost of an injury can land on your business.
Do I need workers comp if I only hire subcontractors?
Most states treat uninsured contractors or subcontractors as your employees, so you may be responsible if one is hurt on your job. Ask each contractor for a certificate of insurance before the work begins.
How are part-time and seasonal workers counted?
That varies by state, though many states count them. South Carolina, for example, counts regular full-time and part-time employees toward its threshold. Ask your state’s workers compensation agency how part-time and seasonal workers are counted, and do it before you hire.
Author’s note: With workers comp, the first question is whether your state already requires it. Check your state’s rule before you hire, and talk to a licensed InsureDirect agent if you are unsure.
Why Choose InsureDirect
Questions about your state’s rule: a licensed InsureDirect agent can answer workers compensation questions by phone or online.
Experience you can check: InsureDirect opened in 1992 and has served individuals, families, and businesses ever since.
A real price for your situation: cost depends on your details, so there is no one number that fits everyone. Get a quote built around yours, or call (800) 807-0762 to talk with a licensed agent.
Get a Workers Comp Quote and see what workers compensation for your business would cost.
Sources
Insurance Information Institute, Workers compensation insurance. Insurance Information Institute, Small business insurance basics. NFIB, Workers’ compensation laws by state.
This article is for general educational purposes and is not a substitute for your policy’s actual terms and conditions. Coverage details, limits, and exclusions vary by policy and by state. Always review your specific policy documents or speak with a licensed agent before making coverage decisions.
Reviewed by Michael E. Dortch, President & Managing Agent, Combined Insurance Group, Ltd. Last updated: November 2026.
