In almost every state, you must carry workers compensation once you have W-2 employees. The threshold varies by state — some require it as soon as you hire one employee, others at a higher headcount. Sole proprietors, partners, and business owners are often exempt but can usually elect coverage. Even where the state does not require it, a general contractor, client, or lease may require it by contract. Because the rules differ everywhere, confirm the requirement with your state's workers compensation agency.
Workers compensation is the one coverage most tied to state law, and the rules — who is required, at how many employees, and who is exempt — are genuinely different in every state. This guide explains the general framework so you know what to check; it is not a substitute for your state's specific rule, which you should confirm with the state agency or a licensed agent.
The core rule: employees trigger it
Workers compensation pays medical bills and lost wages when an employee is injured on the job, and in return limits the employer's liability for those injuries. Nearly every state requires an employer to carry it once they have employees — the disagreement between states is mostly about how many employees and which workers count.
- W-2 employees — the clear trigger; if you have them, assume you need workers comp and verify your state's threshold.
- The threshold varies — some states require coverage at the first employee; others set a higher count, and a few have industry-specific rules (construction is often stricter). Confirm your state's number with the state agency.
Sole proprietors, owners, and family members
Owners are treated differently from employees:
- Sole proprietors and partners — often exempt from covering themselves, but can usually elect coverage (and sometimes must, to satisfy a contract).
- Corporate officers and LLC members — treatment varies by state; some are automatically included, others can opt out.
- Family members — rules vary; do not assume a family member working in the business is exempt.
Even when you are exempt as an owner, you generally still must cover your employees.
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Independent contractors and 1099 workers
A common and costly mistake is assuming 1099 workers never need coverage. States apply their own tests for who is truly an independent contractor versus an employee, and misclassifying an employee as 1099 can lead to state penalties and an uninsured-injury claim landing on you. When you hire subcontractors, many states also expect you to collect their certificates of insurance — an uninsured sub can be charged to your policy at audit. See certificate of insurance.
When a contract requires it anyway
Even where your state does not require workers comp, a general contractor, client, or landlord often requires it by contract before you can start work. This is common in construction and for vendors on commercial property. If a contract requires it, you need it regardless of the state threshold.
Monopolistic states
In a few states — North Dakota, Ohio, Washington, and Wyoming — workers compensation is bought only from the state fund, not from private insurers. If you operate there, you obtain coverage through the state program.
How to confirm your requirement
- Check your state's workers compensation agency — it publishes the employee threshold, owner/officer rules, and any industry-specific requirements.
- Count your workers correctly — include the workers your state counts (some count part-time and certain family members).
- Read your contracts — a GC or client may require coverage even when the state does not.
- Confirm with a licensed agent — especially for owner inclusion/exclusion and multi-state operations.
Frequently Asked Questions
Do I need workers comp if I have one employee?
In many states, yes — some require coverage as soon as you hire your first employee, while others set a higher threshold. Because the number varies by state, confirm your state's rule with its workers compensation agency.
Do sole proprietors need workers comp?
Sole proprietors are often exempt from covering themselves, but can usually elect coverage — and sometimes must, to satisfy a contract. If you have employees, you generally still must cover them even if you exempt yourself.
Do I need workers comp for 1099 contractors?
It depends on your state's test for who is truly an independent contractor. Misclassifying an employee as 1099 can bring penalties and an uninsured-injury claim. Uninsured subcontractors can also be charged to your policy at audit, so collect their certificates of insurance.
Which states run their own workers comp fund?
North Dakota, Ohio, Washington, and Wyoming are monopolistic states where workers compensation is bought only through the state fund rather than private insurers.
Can a contract require workers comp when my state does not?
Yes. General contractors, clients, and landlords frequently require workers compensation by contract before you can start work, regardless of the state threshold. If the contract requires it, you need it.
How do I confirm exactly what my state requires?
Check your state's workers compensation agency, which publishes the employee threshold, owner and officer rules, and any industry-specific requirements, and confirm with a licensed agent — especially for owner inclusion and multi-state operations.
Quick glossary
- Workers compensation
- State-mandated coverage that pays employee medical bills and lost wages for on-the-job injuries and limits employer liability.
- Monopolistic state fund
- A state (ND, OH, WA, WY) where workers comp is bought only from the state program.
- Owner election / exclusion
- The choice, allowed in many states, for an owner to include or exclude themselves from coverage.
- Experience modifier
- A factor based on your claims history that raises or lowers your workers comp premium.