Workers' Compensation Insurance for Small Businesses

What workers' compensation covers

Workers' compensation (workers' comp) is insurance that pays benefits to employees who are injured or become ill because of their job. In exchange, employees generally give up the right to sue the employer over the injury. That trade-off protects both sides: workers get benefits without proving fault, and employers avoid most injury lawsuits.

Workers' comp benefits usually include:

• Medical care: doctor visits, hospital stays, surgery, prescriptions and therapy.
• Lost wages: a portion of the employee's pay while they cannot work.
• Disability benefits for injuries that cause lasting limitations.
• Rehabilitation, including job retraining in some states.
• Death benefits for the families of workers who die from a work injury.

Most policies also include employer's liability insurance. It protects the business when an employee (or a family member) sues anyway, for example by claiming the employer's negligence caused the injury.

Example: An employee of a landscaping company cuts his hand badly on a trimmer and misses three weeks of work. Workers' comp pays the emergency room bill, follow-up care and part of his wages while he heals.

What workers' comp doesn't cover

• Customers and the public. If a customer is hurt, that is a general liability claim.
• Most commuting injuries, because the trip to and from work is usually not part of the job.
• Injuries from intoxication, fights or horseplay, in many states.
• True independent contractors. But be careful: if a state treats your "contractor" as an employee, you may be responsible for covering them.

Who needs workers' compensation insurance?

Every state except Texas requires most employers to carry workers' comp, but each state sets its own rules. Some require coverage from the first employee; others start at three, four or five employees. Construction often has stricter rules. For example, based on MoneyGeek's September 2026 summary of state rules:

Four states are monopolistic: North Dakota, Ohio, Washington and Wyoming. In those states, you must buy workers' comp from the state fund rather than a private insurer.

See the full list in our guide to workers' comp requirements by state, and always confirm the current rule with your state's workers' compensation agency.

Sole proprietors and single-member LLCs without employees usually don't have to cover themselves. Still, many general contractors and clients require a certificate of workers' comp (or a state exemption certificate) before they let you on a job site. That is common for handymen, electricians, plumbers and roofers.

How much does workers' compensation cost?

According to Insureon's 2026 data from 100,000 small-business customers, the median cost of workers' compensation insurance is $54 a month. Because premiums are tied to job risk, the range is wide:

Workers' comp premiums are usually calculated from three things:

1. Payroll, measured per $100 of wages.
2. Class code rate, based on how risky each job is. A roofer's rate is much higher than an office clerk's.
3. Experience modification rate (EMR or "mod"), which raises or lowers your price based on your claims history compared with similar businesses.

Because payroll is an estimate at the start, many insurers run a premium audit after the policy year and adjust the final cost up or down.

Limits and deductibles explained

The workers' compensation part of the policy pays the benefits set by your state's law, so there is no dollar limit to choose for that portion. The employer's liability part does have limits, often shown as three numbers, such as $100,000 each accident / $500,000 policy limit for disease / $100,000 each employee for disease. Contracts sometimes require higher employer's liability limits, which you can raise directly or through an umbrella policy.

Some states allow deductible plans for workers' comp, which lower the premium in exchange for paying part of each claim. Pay-as-you-go billing, which ties payments to each payroll run, can also help small businesses avoid a large up-front deposit or a big audit bill.

How to buy workers' compensation

Buy from a licensed agent, broker or insurer, or from your state fund (required in monopolistic states). Have your payroll estimate, job descriptions and employee count ready. Once covered, post the workplace notices your state requires, report injuries promptly, and keep certificates of insurance ready for clients. If you also need liability coverage, ask about pairing workers' comp with a business owner's policy or general liability. Estimate your total cost with the business insurance cost calculator.

Owners, family members and part-time workers

Rules about who must be covered differ by state, so check these common situations with your state agency:

• Part-time and seasonal employees usually count toward your state's employee threshold, the same as full-time staff.
• Owners, partners, LLC members and corporate officers can often choose to include or exclude themselves. Including yourself costs more but means your own work injuries are covered.
• Family members who work for the business may be treated as employees in some states and exempt in others.
• Independent contractors are not covered, but misclassifying an employee as a contractor can leave you liable for the injury plus penalties.

If you hire subcontractors, ask each one for a certificate of workers' comp. When a subcontractor has no coverage, your insurer may charge you premium for their payroll at audit time.

How to keep workers' comp costs down

• Classify jobs correctly. Make sure office staff are not coded at a field worker's higher rate.
• Build a safety program. Training, protective gear and written procedures reduce injuries and, over time, your experience mod.
• Report injuries quickly. Fast reporting gets employees the right care and helps control claim costs.
• Offer return-to-work options. Light-duty work helps injured employees come back sooner and shortens lost-wage claims.
• Keep payroll records clean so your premium audit matches what you actually paid.
• Use pay-as-you-go billing if cash flow is tight, so payments follow your real payroll.