The short answer
Almost every state requires workers' compensation once you have employees, with thresholds ranging from one employee to five depending on the state. It pays medical costs and lost wages for work-related injuries regardless of fault, and in exchange limits the employee's right to sue you.
The contractor misclassification trap
Classifying a worker as an independent contractor does not remove the obligation if the working relationship looks like employment. State regulators apply their own tests based on control, integration, and economic dependence.
- Penalties for operating without required cover include fines per employee per day and stop-work orders.
- In some states, an uninsured employer loses the exclusive-remedy protection and can be sued directly for the full injury.
- Uninsured subcontractors can roll up onto your policy at audit, generating a large unexpected premium bill.
- Always collect certificates of insurance from subcontractors.
How premiums are calculated
Premium is payroll multiplied by a class-code rate, adjusted by an experience modification factor. Misclassified class codes are the most common cause of overpayment — a clerical employee coded as field labour can cost several times the correct rate.
Review your classifications
Upload your workers' comp policy and audit statement to PolicyPal and we check the class codes against the roles described, flag likely misclassifications, and explain your experience modifier.
Frequently asked
- Do I need it for one part-time employee?
- In most states yes. A handful set the threshold at three to five employees, and a few exempt certain agricultural or domestic roles.
- Am I covered as the owner?
- Owners and officers can often opt out, but then have no cover for their own injuries. Many buy an accident or disability policy instead.
- Does general liability cover employee injuries?
- No. General liability explicitly excludes injury to employees — that exclusion is what makes workers' comp necessary.
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