How it works
Workers’ compensation is a “no-fault” system: injured employees receive benefits regardless of who caused the accident, and in exchange the comp system is usually their exclusive remedy against the employer. A standard policy has two parts: Part One pays the statutory benefits set by state law, and Part Two (employer’s liability) covers lawsuits that fall outside the comp system, up to policy limits.
Who must carry it
Rules vary: some states require cover from the first employee, others from a set number of employees, and some exclude certain groups such as some agricultural workers or sole proprietors. A handful of states (North Dakota, Ohio, Washington and Wyoming) run monopolistic state funds, where employers must buy from the state. Penalties for not having required cover can include fines, stop-work orders and personal liability for claims.
How premiums are set
Premiums are usually based on payroll per class of work (each with a classification code and rate), adjusted by an experience modification rate that reflects your claims history compared with similar businesses. Policies are often audited after the year ends to compare estimated and actual payroll. Misclassifying workers, or treating employees as contractors, can lead to unexpected bills.
Contractors and the self-employed
Independent contractors generally aren’t covered by your policy, but if a contractor is uninsured, some states can treat their workers as yours for comp purposes. Ask subcontractors for certificates of insurance. Sole proprietors can often choose to cover themselves.
Last updated: 15 October 2026
