In most states, you need workers’ comp once you hire employees — sometimes the first one. A few states start at 3, 4, or 5 employees (often 1 in construction). Texas and South Dakota don’t require it, but skipping it can expose you to lawsuits. Four states (Ohio, Washington, North Dakota, Wyoming) make you buy from a state fund. Your premium is an estimate; the real bill comes at the end-of-policy audit — and uninsured subcontractors can be added to it.

Your situation → usual answer

Your situation	Usual answer
1 employee in California (and most states)	Required
2 employees in Virginia	Not yet — required at 3+
1 employee, construction, Florida	Required
Any employees, Texas or South Dakota	Not required — but risky
Ohio, Washington, North Dakota, Wyoming	Required via state fund (Wyoming: extra-hazardous industries)
Only 1099 contractors	Depends on how you control their work

This guide covers who must carry coverage in each state, who counts toward the headcount, how the premium math works, and the audit line item that surprises contractors: the subcontractor who never sent you a certificate.

“Do I Need Workers’ Comp?” State Checker

Answer a few questions to see your state’s rule and whether it applies to you today.

StateChoose a state Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

Employees, including part-time (not counting owners)

Do you do construction work?NoYes

Business typeSole proprietorLLCCorporationPartnership

Owners or officers working in the business

Do you hire subcontractors?NoYes

Your result

Do You Need Workers' Comp? The Short Answer

If you have even one employee, assume you need workers' comp until your state's rule says otherwise.

Workers' comp is required by state law, not federal law, so the answer depends on where the work happens. Most states require coverage from the first employee, part-time included. A smaller group waits until you have 3, 4, or 5 employees, but several of them (Florida, Missouri, New Mexico, Tennessee) drop the number to one for construction. Two states have no general mandate at all, and four run the only insurer in town.

Every state in this guide falls into one of four tiers:

• REQUIRED Coverage starts with your first employee.
• SPECIAL RULE A higher headcount, a payroll test, or a separate construction rule.
• STATE FUND ONLY Required, and you must buy from the state's own fund.
• NOT REQUIRED — STILL RISKY No mandate, but an injured worker can sue you.

When does coverage have to start? Plan to have the policy in place before the first required employee's first day. Some states spell out the timing: Wisconsin requires insurance on the day you employ your third person, and by the 10th day of the next calendar quarter once you've paid $500 in wages in a quarter. Wyoming requires coverage for extra-hazardous work before the work begins. A policy can usually be bound in a day or two, so don't wait for the first paycheck.

This guide is for employers. If you're an injured worker, see Workers' Compensation: Your Rights, Claims & Settlement.

Workers' Comp Requirements by State (2026)

Most states require coverage at one employee; the exceptions below are where small businesses get caught.

Use the table (or tap a state on mobile) for the headline rule. Rows marked "Verified" were checked against the state agency's own wording on the date shown. Rules change, so confirm with the agency before you rely on a row.

Four examples worth knowing:

• Virginia requires coverage when you regularly employ more than two people — three or more. Part-time, seasonal, and temporary workers, minors, and working family members all count, and so do your subcontractors' employees, even if the subcontractor has its own coverage. Domestic (household) employment is excepted.
• Florida requires coverage at four employees outside construction, but at one in construction. Corporate officers and LLC members count unless they file an exemption.
• Tennessee requires coverage at five employees outside construction and at one inside it. Construction owners must also cover themselves or appear on the state's Exemption Registry.
• Wisconsin requires coverage at three employees — or at just one if you've paid $500 or more in gross wages in any calendar quarter, which most employers hit quickly.

Workers' comp requirements by state (2026)

State	Required at	Construction	Notes	Source & date	Tier
Alabama	5+ employees	Same (separate rule for new single-family home construction)	Part-time employees, corporate officers, and LLC members are commonly counted. Domestic, farm, and casual employment excepted.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	SPECIAL RULE
Alaska	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Arizona	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Arkansas	3+ employees	2+ in building or building-repair work; 1+ when a contractor subcontracts or for a subcontractor	Sole proprietors, partners, and LLC members can apply for a Certificate of Non-Coverage. Farm labor and domestic help excepted.	Arkansas Workers' Compensation Commission (Form A) Verified Oct 8, 2026	SPECIAL RULE
California	1+ employee	Same	Even one employee, including part-time. Going uninsured is a criminal offense.	California DIR Verified Oct 8, 2026	REQUIRED
Colorado	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Connecticut	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Delaware	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
District of Columbia	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Florida	4+ employees	1+ employee (owners who are officers or LLC members count unless exempt)	Agriculture: 6 regular or 12 seasonal workers. If a subcontractor has no coverage, its workers can become the contractor's employees.	Florida DFS, Division of Workers' Compensation Verified Oct 8, 2026	SPECIAL RULE
Georgia	3+ employees	Same	Regular part-time employees count. Corporate officers can waive their own coverage but still count toward three.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	SPECIAL RULE
Hawaii	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Idaho	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Illinois	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Indiana	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Iowa	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Kansas	1+ employee, with a small-payroll exemption	Same	Employers below a gross annual payroll limit (reported as $20,000) may be exempt. Confirm the current figure.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	SPECIAL RULE
Kentucky	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Louisiana	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Maine	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Maryland	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Massachusetts	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Michigan	3+ at one time, or 1+ working 35+ hrs/week for 13+ weeks	Same	Part-time employees count toward three. The 35-hour/13-week test looks back over the preceding 52 weeks.	Michigan Workers' Disability Compensation Agency Verified Oct 8, 2026	SPECIAL RULE
Minnesota	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Mississippi	5+ employees	Same	Five or more regularly employed. Below five, coverage is voluntary.	Mississippi Workers' Compensation Commission Verified Oct 8, 2026	SPECIAL RULE
Missouri	5+ employees	1+ employee	Exempt employers that skip coverage can still be sued by injured workers.	Missouri Division of Workers' Compensation Verified Oct 8, 2026	SPECIAL RULE
Montana	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Nebraska	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Nevada	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
New Hampshire	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
New Jersey	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
New Mexico	3+ employees (counted company-wide if 1+ works in NM)	Any number if licensed under the Construction Industries Licensing Act	Out-of-state companies with 3+ employees total and one working in New Mexico need New Mexico coverage.	New Mexico Workers' Compensation Administration Verified Oct 8, 2026	SPECIAL RULE
New York	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
North Carolina	3+ employees	Same (subcontractor rules apply)	1+ if work involves radiation. Corporate officers can opt out but still count. Using an uninsured subcontractor can make you liable for its workers.	North Carolina Industrial Commission Verified Oct 8, 2026	SPECIAL RULE
North Dakota	1+ employee	Same	Coverage comes only from the state fund, Workforce Safety & Insurance (WSI).	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	STATE FUND ONLY
Ohio	1+ employee	Same	Coverage comes from the Ohio Bureau of Workers' Compensation or qualified self-insurance.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	STATE FUND ONLY
Oklahoma	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Oregon	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Pennsylvania	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Rhode Island	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
South Carolina	4+ employees	Same (subcontractors under 4 decided case by case)	Part-time workers and family members count. Exempt if annual payroll is under $3,000.	South Carolina Workers' Compensation Commission Verified Oct 8, 2026	SPECIAL RULE
South Dakota	Not required	Not required	No law requires any employer to carry it. Uninsured employers can be sued in civil court.	South Dakota Dept. of Labor & Regulation Verified Oct 8, 2026	NOT REQUIRED — STILL RISKY
Tennessee	5+ employees	1+ employee (owners must be covered or listed on the Exemption Registry)	Coal mining: 1+. An employer that drops below five (non-construction) stays covered until its Form I-3 withdrawal is accepted.	Tennessee Bureau of Workers' Compensation Verified Oct 8, 2026	SPECIAL RULE
Texas	Not required for most private employers	Not required (public-contract rules can differ)	Non-subscribers must post notice, give new hires written notice, and file DWC Form-005 with the state.	Texas Department of Insurance, DWC Verified Oct 8, 2026	NOT REQUIRED — STILL RISKY
Utah	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Vermont	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Virginia	3+ employees (more than two)	Same; subcontractors' employees count	Part-time, seasonal, family members, and executive officers count. Officers may reject coverage via Form 16A. Domestic employment excepted.	Virginia Workers' Compensation Commission Verified Oct 8, 2026	SPECIAL RULE
Washington	1+ employee	Same	No private workers' comp. Buy from the Department of Labor & Industries or become a certified self-insurer.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	STATE FUND ONLY
West Virginia	1+ employee	Same	Generally required with 1+ employee, including part-time. Exceptions (often farm, domestic, or casual work) vary.	State agency via U.S. DOL directory [EDITOR: verify with the state agency and add date before publishing]	REQUIRED
Wisconsin	3+ employees, or 1+ with $500+ wages in a calendar quarter	Same	Excluded corporate officers still count. Farms: 6+ employees on 20 days in a year.	Wisconsin DWD Verified Oct 8, 2026	SPECIAL RULE
Wyoming	Required for extra-hazardous industries	Depends on your NAICS class; the state decides at registration	State fund (Department of Workforce Services). Businesses not classed as extra-hazardous may opt in.	Wyoming Department of Workforce Services Verified Oct 8, 2026	STATE FUND ONLY

No Mandate: Texas and South Dakota

Texas and South Dakota don't force private employers to buy workers' comp, but going without it trades a premium for lawsuit risk.

South Dakota is the plainest case. The state's Department of Labor & Regulation says no law requires any employer to carry workers' comp, recommends it strongly, and warns that an uninsured employer can be sued in civil court by an injured worker.

Texas lets most private employers choose. Employers that opt out are called non-subscribers, and opting out comes with paperwork. Under Texas Department of Insurance rules, a non-subscriber must:

• Post a notice of no coverage where employees will see it.
• Give new employees written notice that there is no coverage.
• File DWC Form-005 (the non-subscriber notice) with the Division of Workers' Compensation, including when you end a policy.

Monopolistic States: Buy From the State Fund

In North Dakota, Ohio, Washington, and Wyoming, workers' comp comes from a state-run fund, not a private insurer.

These four are called monopolistic states (Puerto Rico and the U.S. Virgin Islands also run monopolistic funds). A regular private policy can't cover your employees' work there, so a business based elsewhere that sends people into one of these states usually needs a separate state-fund account.

Monopolistic state funds

State	Who you buy from	Worth knowing
North Dakota	Workforce Safety & Insurance (WSI)	Uses its own classification system
Ohio	Ohio Bureau of Workers' Compensation	Qualified employers can self-insure
Washington	Department of Labor & Industries	No private workers' comp; certified self-insurance allowed
Wyoming	Department of Workforce Services	Required for extra-hazardous industries; others may opt in; rates follow NAICS classes

Who Counts as an Employee

States count more people than most owners expect — usually part-timers, often family and officers, and sometimes your subcontractor's crew.

The headcount question decides whether you're over a 3-, 4-, or 5-employee threshold, so count generously. Virginia's description is typical of how broad "employee" is: part-time, seasonal, and temporary workers, minors, trainees, immigrants, and working family members all count.

Who counts toward the workers' comp headcount

Worker type	Usually counts?	Note
Full-time employees	Yes	Every state with a mandate
Part-time employees	Usually yes	Virginia, Wisconsin, South Carolina, and Michigan count them expressly
Seasonal and temporary workers	Often yes	Virginia counts them
Family members on payroll	Often yes	Virginia and South Carolina count them; some states carve out certain relatives
Corporate officers	Often yes	Virginia, North Carolina, and Wisconsin count officers even if they opt out of their own coverage
LLC members or managers	Varies	Virginia counts LLC managers; Florida counts LLC members unless exempt
Sole proprietors and partners	Usually no	Usually not employees unless they elect coverage
1099 contractors	Depends	Status turns on control of the work, not the tax form
Your subcontractor's employees	Sometimes	Virginia counts them toward the threshold
Unpaid volunteers	Usually no	Virginia: unpaid volunteers generally aren't employees

Running the business from home doesn't change the rule; a home-based employer counts employees the same way. See Running a Business From Home? for the property side.

Owner, Officer, and LLC Member Exclusions

Whether an owner can opt out of coverage — and whether they still count toward the headcount — depends entirely on your state.

There's no national rule here. A few examples show how different the mechanics are:

• Virginia: executive officers and LLC managers are employees. An officer can reject coverage only by filing Form 16A, and only while a valid policy is in place.
• North Carolina: corporate officers may elect to be excluded, but they still count when deciding whether you have three or more employees.
• Wisconsin: an excluded officer still counts toward the three-employee and $500-wage tests. A corporation with more than two officers, or any other employee, can't use the officer-option notice and must keep a policy.
• Florida: officers and LLC members count as employees unless they file an exemption with the Division of Workers' Compensation.
• Arkansas: sole proprietors, partners, and LLC members can apply for a Certificate of Non-Coverage.
• Tennessee: construction business owners must carry coverage on themselves or be listed on the state's Exemption Registry.

Opting yourself out lowers the premium, but it also means workers' comp won't pay if you're the one who gets hurt. If you exclude yourself, plan for your own income protection — see Disability Insurance.

1099 Contractors and Uninsured Subcontractors

A 1099 doesn't make someone a contractor; how much you control the work does, and uninsured subcontractors can cost you at audit time.

State agencies are blunt about this. Virginia's Commission says the designation and the 1099 aren't what matter. North Carolina's Industrial Commission says calling workers independent contractors and issuing 1099s doesn't relieve you of liability if the facts show they're employees, with the degree of control over the details of the work a key factor.

Questions that usually point toward "employee":

• Do you set the hours, the method, and the order of the work?
• Do you supply the tools, vehicle, or materials?
• Can you fire them at will, rather than end a contract?
• Are they paid by the hour or week rather than by the job?
• Do they work only for you, without their own business, license, or insurance?

The audit charge. When you pay a subcontractor who can't show proof of their own workers' comp, your insurer can treat those payments as your payroll at the end-of-policy audit and bill premium on them. Virginia notes insurers can charge audit premium for contractors without valid proof of coverage. Some states go further: North Carolina can hold you liable for an uninsured subcontractor's injured workers regardless of headcount, and Arkansas requires coverage with a single employee when a contractor subcontracts part of a contract.

Subcontractor checklist

• Get a certificate of insurance before any work starts.
• Confirm it lists workers' compensation, for the right state, with dates that cover the whole job.
• Verify the policy on the state's lookup tool where one exists (for example, Virginia's Insurance Coverage Search).
• Ask for an updated certificate if the policy expires mid-job.
• Keep copies, organized by subcontractor, for your audit.

If a worker is seriously injured on a job site, the claim questions are different; see Construction Accident Lawyer.

How Workers' Comp Premiums Are Calculated

Your premium is roughly payroll ÷ 100 × your class rate × your experience mod, before credits and fees.

That's the standard simplified formula. Each piece:

• Payroll ÷ 100. Rates are quoted per $100 of payroll, so $60,000 of payroll is 600 units.
• Class-code rate. Each job type has a classification code and a rate. Riskier work (roofing) costs far more per $100 than lower-risk work (office staff). Many states use NCCI classifications; some use their own rating bureau, and Wyoming rates by NAICS class.
• Experience modification (mod). Once your business is large enough to qualify, your claims history is compared with similar businesses. A mod of 1.00 is average; 0.90 lowers the premium 10%; 1.20 raises it 20%. New small businesses usually start at 1.00.

Insurers then apply credits, discounts, minimum premiums, taxes, and fees. Virginia, for example, requires insurers to offer up to a 5% discount for a certified drug-free workplace.

Premium formula example (hypothetical)

Step	Amount
Annual payroll	$60,000
Payroll ÷ 100	600
× class rate (hypothetical)	$2.50 → $1,500
× experience mod	1.00 → $1,500
Same business with a 0.90 mod	$1,350

What about "average cost"? You'll see $1.09 per $100 of payroll quoted online. That's the national median index from Oregon's 2024 Premium Rate Ranking study, built from a fixed mix of 50 industry classes so states can be compared. It ranged from about $2.52 in Hawaii to the lowest in North Dakota. It's useful for comparing states — it is not a price you'll pay. Your cost depends on your class codes.

The End-of-Policy Audit Trap

Your workers' comp premium is billed on an estimate, then corrected by an audit after the policy period ends — and the correction can be a bill.

At the start of the policy, the insurer charges a deposit premium based on the payroll you estimate. After the policy period, it audits: it compares estimated payroll with actual payroll, checks that each worker sits in the right class, reviews your operations, and looks at what you paid subcontractors. If actual exposure was higher, you owe additional premium. If it was lower, you may get money back.

Why audits surprise people:

• Payroll grew and nobody told the insurer mid-term.
• Uninsured subcontractors were added to your payroll because you had no certificate.
• Misclassification — a worker estimated as clerical was actually in the field.
• Overtime records weren't separated. In many states the extra (premium) portion of overtime can be excluded, but only if your records show it; ask your insurer.

Premium + Audit Estimator

Enter your numbers to see the estimated premium and how an audit could change it.

Estimated annual payroll ($)

Class rate per $100 of payroll

From your quote or your state's rate filing.

Experience mod

Actual payroll for the policy period ($, optional)

Paid to subcontractors without proof of coverage ($, optional)

Your estimate

Audit: estimated vs. actual (hypothetical)

Item	Estimated	Actual	Difference
Employee payroll	$60,000	$72,000	+$12,000
Uninsured subcontractor payments	$0	$8,000	+$8,000
Total payroll basis	$60,000	$80,000	+$20,000
Premium at $2.50 rate, 1.00 mod	$1,500	$2,000	+$500 due at audit

Audit-prep checklist

• Payroll reports for the policy period, broken out by class code.
• Overtime records showing the premium portion separately.
• 1099s and invoices for every contractor and subcontractor.
• Certificates of insurance for every subcontractor, with dates.
• Officer or owner exclusion forms on file with the state.
• Job descriptions showing what each worker actually does.

Penalties for Not Having Coverage

Penalties for skipping required coverage range from daily fines to stop-work orders and criminal charges, and you can owe the injured worker's benefits yourself.

Virginia is a clear example. Under Va. Code § 65.2-805, an employer that fails to insure when required faces a civil penalty of up to $250 per day, capped at $50,000. The Commission adds that the employer is also liable to the injured employee for compensation, and continued failure can lead to an order barring the business from operating and to criminal prosecution.

California treats failing to carry required coverage as a criminal offense. In Texas, a non-subscriber that fails to post or give the required notices violates state rules. Penalty amounts in other states vary and change, so check your state agency (linked in the table above) rather than relying on a figure from an aggregator site.

Two related rules: in Virginia you can't deduct the cost of workers' comp from wages (a fine of up to $100 per offense), and in Arkansas it's a felony to compel an employee to pay for or contribute to coverage.

Employees Working in Other States

Coverage follows where the work is done, so an employee working in another state can trigger that state's rules — even briefly.

• Virginia requires Virginia coverage for work performed or subcontracted in Virginia, even temporary work. There's no reciprocity, so check the other state's rules before sending Virginia workers out.
• New Mexico counts your total workforce: with three or more employees and at least one working in New Mexico, you need New Mexico coverage, whether the work is permanent, temporary, or transitory.
• Wisconsin requires out-of-state employers with employees working there to carry a policy from a Wisconsin-licensed insurer that names Wisconsin in Section 3A.
• Monopolistic states (North Dakota, Ohio, Washington, Wyoming) need state-fund coverage; a private policy's other-states coverage won't fill the gap.

Remote employees: list every state where an employee lives and works on your policy. A remote hire in a new state is a new state on your policy, not just a new name on payroll.

Where to Buy Coverage

Most employers buy from a private insurer through an agent, with a state fund, the assigned-risk plan, or a PEO as the other routes.

• Private insurers, directly or through an independent agent or broker.
• Assigned-risk (residual) market if no insurer will cover you. In many states, including Virginia and South Carolina, this plan is administered by NCCI.
• Competitive state funds in some states sell alongside private insurers.
• Monopolistic state funds are the only option in North Dakota, Ohio, Washington, and Wyoming.
• Professional employer organizations (PEOs) can cover your employees under their arrangement; Virginia lists PEOs as one of four ways to insure.
• Self-insurance, for larger employers that qualify with the state.

Occupational accident policies aren't a substitute where coverage is required — Virginia and North Carolina both say so. We don't recommend specific insurers. For the other policies a small business usually needs, see Small Business Insurance and Business Insurance for LLCs. Injuries in company vehicles can also involve your commercial auto insurance.

FAQ

Do I need workers' comp for one employee?

In most states, yes. States like California require it with a single employee. A few states start at 3, 4, or 5 employees, and Texas and South Dakota don't require it at all.

Do part-time employees count?

Usually, yes. Virginia, Wisconsin, South Carolina, and Michigan all count part-time employees toward their thresholds.

Do family members count?

Often. Virginia and South Carolina count working family members. Some states carve out certain relatives, so check your state.

Do 1099 contractors need workers' comp?

Not if they're truly independent. But the 1099 isn't the test — control of the work is. If they're really employees, they count and must be covered where the state requires it.

Can uninsured subcontractors raise my premium?

Yes. At the end-of-policy audit, insurers can treat payments to subcontractors who lack proof of coverage as your payroll and charge premium on them.

Is workers' comp required in every state?

No. Texas and South Dakota have no general mandate for private employers, and Wyoming requires it only for extra-hazardous industries.

Is workers' comp optional in Texas?

For most private employers, yes. Non-subscribers must post notice, give new hires written notice, and file DWC Form-005 with the state.

Is workers' comp required in South Dakota?

No. No South Dakota law requires it, but uninsured employers can be sued in civil court.

How many employees before Virginia requires it?

Three. Virginia requires coverage when you regularly employ more than two people, counting part-timers, officers, and subcontractors' employees.

What are the monopolistic states?

North Dakota, Ohio, Washington, and Wyoming (plus Puerto Rico and the U.S. Virgin Islands). Coverage there comes from the state fund.

Can I buy private workers' comp in Ohio?

No. Ohio coverage comes from the Ohio Bureau of Workers' Compensation, unless you qualify to self-insure.

Can an owner or LLC member opt out?

Sometimes, depending on the state. Virginia officers use Form 16A; Florida officers and LLC members file an exemption; in North Carolina and Wisconsin excluded officers still count toward the headcount.

How much does workers' comp cost for one employee?

It depends on that employee's pay and job class. A hypothetical $40,000 clerical employee at a $0.30 rate would be about $120 before fees; a roofer at a far higher rate would cost much more. Use the estimator with your quoted rate.

How is the premium calculated?

Payroll ÷ 100 × class rate × experience mod, then credits, minimums, taxes, and fees.

What is an experience mod?

A multiplier comparing your claims history with similar businesses. 1.00 is average; below 1.00 lowers your premium, above 1.00 raises it.

What happens in a workers' comp audit?

After the policy period, the insurer compares your estimated payroll, classifications, and subcontractor costs with your actual records, then bills or refunds the difference.

Why did my premium go up after the audit?

Usually because payroll was higher than estimated, workers were in a costlier class, or payments to uninsured subcontractors were added.

What records do I need for an audit?

Payroll by class, overtime records, 1099s and invoices, subcontractor certificates, owner exclusion forms, and job descriptions. Use the audit checklist above.

Can I deduct workers' comp from employees' pay?

No, as a general rule. Virginia prohibits it (fines up to $100 per offense), and Arkansas makes compelling employees to contribute a felony.

What's the penalty for not having coverage?

It varies by state. In Virginia it's up to $250 a day, capped at $50,000, plus liability for the injured worker's benefits.

Does my policy cover employees in other states?

Only the states listed on it. Add every state where employees work, and get state-fund coverage for monopolistic states.

What if no insurer will cover me?

Apply to your state's assigned-risk plan (often run by NCCI), or ask about your state fund or a PEO.

Last updated: October 8, 2026

This guide is general information, not legal or insurance advice. State rules change; rows are dated with when we last checked them against the state agency, verified as of Oct 8, 2026 where shown. Confirm your obligations with your state workers' compensation agency.