Workers' compensation is one of the few business insurances that is not optional. In almost every state, the moment you hire your first employee, you are legally required to carry it. Skipping it is not a gamble — it is a liability that can end your business.
What workers' comp actually covers
Workers' comp pays for medical treatment, lost wages, and rehabilitation when an employee is injured or becomes ill because of their job. In exchange, employees generally give up the right to sue you directly. It protects both sides.
- Medical bills from work-related injuries
- A portion of lost wages during recovery (usually about two-thirds)
- Disability benefits for lasting injuries
- Death benefits to families in fatal cases
- Your legal protection from most injury lawsuits
When is it legally required?
The rules vary by state, but the trigger is almost always your first employee. Most states require coverage immediately; a few set a threshold of two to five employees. Texas is the notable exception where private employers can opt out — but doing so exposes them to unlimited liability lawsuits.
What it costs
Premiums are calculated per $100 of payroll, adjusted by your industry's risk class. A low-risk office might pay $0.30 per $100 of payroll; a roofing company might pay $15 or more. The national average lands around $1 to $3 per $100 for most small businesses.
| Industry | Approx. rate per $100 payroll | Risk level |
|---|---|---|
| Clerical / office | $0.20 – $0.50 | Low |
| Retail | $1.00 – $2.50 | Medium |
| Restaurant | $1.50 – $3.50 | Medium-high |
| Construction | $7.00 – $20.00 | High |
What happens if you don't carry it
Going without required coverage is among the most expensive mistakes a small employer can make:
- State fines that can run into thousands of dollars per day
- Personal liability for the employee's full medical costs
- Lawsuits with no legal cap, since you lose the liability shield
- Possible stop-work orders or even criminal charges in some states
If you have even one employee, assume you need workers' comp and verify your state's exact rule. The penalty for skipping it almost always dwarfs the premium.
How to lower your premium
- Classify employees correctly — misclassification inflates premiums
- Build a documented safety program
- Maintain a strong claims history (your experience modifier lowers costs over time)
- Shop multiple carriers, since rates for the same class vary widely
Use our business liability calculator to estimate your general liability costs, and treat workers' comp as a separate, required line item on top of it.