When Do You Need Workers Compensation Insurance

 

When Do You Need Workers Compensation Insurance?

If you are starting or growing a business, it is very easy to overlook one simple but important question:

“At what point do I have to get workers compensation insurance?”

Some owners wait until they have a whole team. Others think they can skip it because they only hire part time help or pay people as contractors. Some assume their state is relaxed about it.

Most of the time, those assumptions are wrong.

For many employers in the United States, workers compensation coverage is required as soon as you hire your first employee, and it is a key part of protecting both your team and your business.

In this long guide from Savon Insurance Brokerage for readers of savonusa.com, we will walk through:

Grab a coffee and think of this as a conversation with a smart friend who happens to understand insurance and compliance.

 

First Things First: What Is Workers Compensation Insurance?

Before we talk about when you need it, it helps to be clear about what it is.

Workers compensation is a state mandated insurance system that provides benefits to employees who are injured or become ill because of their job. It typically pays for:

The U.S. Department of Labour describes workers compensation programs as providing wage replacement, medical treatment, vocational rehabilitation and other benefits to workers who are injured at work or who have occupational diseases.

In return, in most states, employees who receive these benefits give up the right to sue their employer for negligence over that injury. That is why regulators and the National Association of Insurance Commissioners describe workers compensation as a compromise between employers and employees that acts as the employee’s exclusive remedy for work related injuries.

So workers comp is:

Now let us talk about when that requirement kicks in.

 

The Short Answer: You Usually Need Workers Comp When You Hire Your First Employee

If you remember nothing else from this article, remember this:

In many states, you need workers compensation insurance
as soon as you hire your first employee.

Several sources aimed at small business owners say this very clearly:

That means you cannot safely assume that you can wait until you have three, five or ten people. In many states, the trigger is one.

Of course, details vary, and a few states are more flexible. So let us go a little deeper.

 

How State Laws Decide When You Need Workers Compensation

Workers compensation is governed by state law, not a single national rule. Each state:

A national overview explains that nearly every state requires employers to carry workers compensation insurance, and that typically the number of employees determines when coverage is required.

Here are some common patterns and examples.

States where one employee is enough

Some states require coverage as soon as you have one employee on payroll. Examples include:

In these states, there is no waiting until you “get bigger.” The first employee is the trigger.

States with higher employee thresholds

Other states set a higher threshold, such as:

Remember, these are only examples. Every state has its own fine print.

The exception: Texas and a few special cases

Texas is often mentioned because it is different. A small business health provider explains that Texas is the only state where most private employers are not required to carry workers compensation coverage, although they can still be held liable for occupational injuries if they choose not to buy it.

Even in Texas, there are important exceptions. For example:

The takeaway is simple:

You cannot rely on a single rule.
You have to look at your state, your employee count, and your industry.

This is exactly the kind of thing a broker like Savon checks for you so you do not have to decode every statute on your own.

 

Do Sole Proprietors And Partners Need Workers Comp?

One of the most common questions Savon hears is:

“It is just me right now. Do I still need workers comp?”

The answer depends on how your business is set up and where you operate.

The Insurance Information Institute explains that in most states, sole proprietors and partnerships are not required to purchase workers compensation unless and until they have employees who are not owners. However, many states allow owners to choose to cover themselves if they want to.

So if you are:

the law may not force you to carry workers compensation. That does not necessarily mean it is a bad idea to have it. Some reasons owners choose to buy workers comp for themselves include:

Once you hire anyone who is not an owner, the picture usually changes. At that point, in many states you move from optional to required.

 

When Part Time, Seasonal And Family Workers Trigger Coverage

Another mistake business owners make is thinking that certain workers “do not count” for workers comp purposes. That can be an expensive misunderstanding.

Part time workers

In many states, part time employees are treated the same as full time employees under workers comp law.

For example:

A national health provider that focuses on occupational medicine points out that most states require employers to cover full time and part time employees, and that thresholds vary by state.

So if you hire someone for 15 hours a week, and your state requires coverage for businesses with one or more employees, you likely need workers comp.

Seasonal workers

Some states have specific rules for seasonal or agricultural workers. For instance, Florida’s workers compensation division has special rules for agricultural employers based on regular and seasonal employee counts and days worked.

The key point is that seasonal status does not automatically exempt you. You need to check the rules for your industry and state.

Family members

Business owners sometimes assume that if workers are family, they are not covered by workers comp rules. That is often not the case.

Virginia, for example, explicitly lists minors, trainees, immigrants and working family members as employees for coverage purposes when counting the two or more worker threshold.

Other states have their own approach. Some exempt certain relatives in very small family businesses, but many do not.

If you are paying a family member to work in your business, do not assume they are invisible to regulators. Ask your broker or state agency how they are counted.

 

Remote Workers And Out Of State Employees

Modern work arrangements add another layer of confusion. Maybe:

When you ask “when do I need workers compensation insurance”, you also have to ask “where?”

A multi state summary of workers comp laws emphasizes that requirements are based on where employees work, not only where the business is registered. Many states require coverage for any employees working in that state, even if the employer is based elsewhere.

This means:

Ignoring out of state employees is a common compliance gap. Savon helps clients map where their team actually works so they can line up coverage correctly.

 

Contractors, Subcontractors And The Risk Of Misclassification

Many small businesses try to keep things simple by calling workers “independent contractors” and paying them with a 1099 instead of putting them on payroll.

For tax and workers comp purposes, that is not only about what you call them. It is about how the law sees them.

State agencies warn that if a worker is treated like an employee in practice, but labelled a contractor on paper, the employer may still be responsible for workers compensation coverage. In some states, general contractors can even be held liable for uninsured subcontractors on a job site.

That means:

there is a good chance they will be treated as an employee under workers comp law, even if you have them sign an “independent contractor” agreement.

When in doubt:

It is much safer to clarify roles and coverage ahead of time than to argue about them after someone is hurt.

 

Industry Specific Triggers And Higher Risk Fields

In some industries, workers comp rules are stricter and kick in earlier. Construction is a classic example.

Construction and trades

Several state sources note that construction businesses often face lower thresholds for mandatory coverage:

If you operate in construction or similar trades, the safe assumption is that you will need workers comp as soon as you are not working completely alone.

Agriculture, domestic workers and other special categories

Some states carve out special rules for:

For example, Florida’s agricultural coverage rules refer to thresholds for regular and seasonal employees and days worked. Missouri and some other states have specific rules for farm laborers.

If you are in a niche field, you will want to ask your broker for help interpreting the rules that apply to your type of work. Savon can help clients look up state specific guidance and match it to what the business actually does.

 

When You Need Workers Comp Even If The Law Is Flexible

There are times when the law may not force you to carry workers comp, but it is still smart to have it.

  1. Contract and client requirements

Many:

will require proof of workers compensation before they sign a lease or contract. This happens even in states where small employers might not strictly be required to have coverage.

You might see language like:

If you want to work with larger clients or rent space in commercial centres, having workers comp in place can be part of the ticket in the door.

  1. Voluntary coverage for owners

Even when owners are not required to be covered, some choose to opt in.

Travelers notes that even if you are a sole proprietor with no employees, workers comp coverage can help pay your medical expenses and lost wages if you are injured while working.

This can be especially important if:

  1. States with optional coverage but high liability risk

Texas illustrates this clearly. Many private employers are not legally required to carry workers compensation, but a health provider notes that they can still be held liable for employees’ occupational injuries if they do not carry coverage.

If you operate in a state with optional workers comp, you should think carefully about:

Savon can help you weigh those risks and decide whether voluntary workers comp coverage makes sense even when it is not mandated.

 

What Happens If You Wait Too Long Or Skip Coverage

It might be tempting to delay workers comp until you are “sure” you need it. That delay can be costly.

Fines and penalties

State agencies and business insurance providers warn that employers who fail to carry required workers compensation can face:

Some states also impose penalties for each day you operate without required coverage. That adds up very quickly.

Personal liability for benefits

If an employee is injured while you are uninsured, you may be:

In some cases, state funds pay benefits and then pursue the employer for reimbursement.

Lawsuits and criminal charges

Without workers comp, workers can often sue employers for negligence over job related injuries. That can lead to:

There are also cases where owners have faced criminal charges for knowing failure to provide required workers compensation coverage when a serious injury occurred.

The risk is not only financial. It is reputational and legal. Compared to that, the cost of a workers comp policy is usually very small.

 

A Simple Checklist: Do You Need Workers Compensation Insurance Right Now?

Here is a practical way to think through your situation. If you answer “yes” to any of these, it is time to talk to Savon or your current broker.

Questions about employees

Questions about state rules

Questions about industry and contracts

Questions about risk and growth

If these questions make you nervous, that is a sign you should put workers comp in place now, before something happens.

 

How Timing Works: When To Put Coverage In Place

From a legal and practical point of view, the safest answer is:

Put workers compensation in place before your first employee’s first day.

Here is why that timing matters.

A simple way to think about it:

Once you are set up, your policy can be adjusted as you hire more people or work changes.

 

How Savon Insurance Brokerage Can Help You Figure This Out

You do not need to memorize every state’s rules or decode statutes on your own. That is what an independent broker is for.

Savon Insurance Brokerage is a virtual, independent insurance agency. That means:

When you ask Savon “when do I need workers compensation insurance”, they will usually:

  1. Ask where your business is based and where employees actually work
  2. Ask how many people you have, including part time and family members
  3. Ask what kind of work you do and in which industries
  4. Look up your state’s thresholds and special rules
  5. Explain whether you are already required to have coverage or will be soon

From there, they can:

You do not have to become a workers comp expert. You just have to be willing to ask for help and put the basics in place.

 

Frequently Asked Questions: When Do You Need Workers Compensation?

Do I need workers comp if I only have one employee?

In many states, yes. Several states require coverage for employers with one or more employees, including part time staff.

What if I only use part time or seasonal help?

Part time and seasonal workers usually count as employees for workers comp purposes. Some states have specific thresholds for seasonal or agricultural workers, but you cannot assume they are exempt.

I pay my workers as 1099 contractors. Do I still need workers comp?

Maybe. If state law would see them as employees based on how you control their work, you may still be responsible for workers comp coverage. Misclassifying workers does not remove your obligation and can lead to penalties and back premiums.

Do I need workers comp if I have only family working for me?

Many states count family members as employees, especially if they are paid or perform regular work. Some states offer narrow exemptions, but you should not assume that family status alone removes the requirement.

What if my business is in Texas?

Texas is one of the only states where most private employers are not required by law to carry workers compensation. However, employers that choose not to carry coverage can still be sued over work injuries and may face other obligations. Many businesses in Texas still choose to carry workers comp to limit their risk.

 

Final Thoughts: Do Not Wait For An Injury To Answer This Question

The time to ask “when do I need workers compensation insurance” is before something goes wrong, not after.

In simple terms, you need to start thinking about workers comp:

Workers compensation is not just another line item on your expense sheet. It is a core part of running a real, responsible business that:

If you are not sure where you stand, reach out to Savon Insurance Brokerage. A short conversation can save you from big problems later, and it can turn workers comp from something confusing and intimidating into a clear, manageable part of your business plan.

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