Do I Need Workers' Compensation Insurance for My Small Business?

By Bill Stilwell · Last reviewed October 17, 2026

The short answer

Workers’ compensation pays medical bills and lost wages for employees hurt on the job. For private businesses, it’s run by each state, not the federal government. The Small Business Administration (SBA) says businesses with employees are required to have it, and you can usually get it from a commercial insurer, through a state program, or by self-insuring where allowed. Check your state’s workers’ compensation agency for who must carry it and what counts.

What this means

Workers’ compensation is insurance for workplace injuries and illnesses. In most cases, it covers an injured employee’s medical care and part of their lost pay, and in return it limits lawsuits against the employer over the injury.

State rules. The U.S. Department of Labor directs workers at private companies to their state workers’ compensation agency. Federal programs cover federal workers and a few special groups.
Ways to get coverage. A private insurance company, a state fund or program, or self-insurance for businesses that qualify.
Premiums. Usually based on your payroll and the kind of work your employees do. Riskier work costs more.
Owners. Whether owners are covered, or can choose to be, depends on your state and business type.
Contractors. Usually not covered by your policy, but if a contractor is really an employee under state rules, or has no coverage of their own, you may be on the hook.

This page also covers workers’ compensation from Part 10.8 (10.8.3) and Part 23 (23.4.4).

Made-up example: Green Thumb Lawn and Garden hires two seasonal mowers. Before their first day, the owner gets a workers’ compensation policy through her insurance agent, posts the required notice in the shop, and asks every subcontractor for a certificate of insurance.

Why it matters

One injury can be very costly without coverage.
States can penalize businesses that don’t carry required coverage, and some can stop work.
Licenses and contracts often require proof. Many commercial customers won’t let you on a job without a certificate.
Misclassified contractors can turn into uncovered employees after an injury.

Who this applies to

Any business with employees should check its state’s rules before the first hire. States differ on exemptions for very small employers, owners, family members, and certain kinds of work. If you have no employees, you may not need a policy, but customers or licensing boards may still ask for proof of coverage or an exemption. Check your state workers’ compensation agency through the Department of Labor’s list of state officials.

How to do it

Find your state agency on the Department of Labor’s “State Workers’ Compensation Officials” page.
Read who must carry coverage in your state and whether any exemption fits you.
Talk to an insurance professional and get quotes from private insurers or your state fund (see 6.3.4 Insurance Professional).
Describe the work accurately. Wrong job classes lead to surprise bills at audit time.
Start coverage before the first day of work.
Post any required notices at your workplace (see 23.4.6 Required Workplace Posters).
Collect certificates of insurance from subcontractors (see 11.2.6 Insurance Certificates from Vendors).
Set up an injury reporting process so claims go in on time (see 11.4.5 Incident Reports).
Expect a yearly payroll audit from your insurer, and keep payroll records ready.

What proof to keep

The policy and certificate of insurance
Your state’s rule or exemption notice, with the date you checked
Posted notices (a photo works)
Subcontractor certificates
Injury reports and claim records
Premium audit results

Common mistakes

Waiting until after someone gets hurt.
Picking the cheapest job class instead of the right one.
Not collecting certificates from subcontractors.
Assuming one or two employees means you’re exempt. Many states have no small-employer exemption.
Calling workers contractors to avoid buying a policy.

When to get help from a pro

Insurance professional: before your first hire, when your work changes, and at renewal. This page is marked Required for professional review. Questions to ask:

Does my state require me to carry coverage, and can I or my family be excluded?
What job classes fit my employees’ work?
How does the yearly audit work, and what records should I keep?

Bill’s note

[Bill: add a short note. For example, what you learned about workers’ compensation for SiteSmarty, or a trades client who lost a commercial job because they couldn’t show a certificate.] If you’d rather have your coverage shown properly on your website and Google Business Profile, SiteSmarty can help add credentials the right way.

How I did this for SiteSmarty

[Date I did this:]
[What I actually did, step by step: how I checked my state’s rule and whether SiteSmarty needs a policy]
[What it cost and how long it took:]
[What surprised me or what I’d do differently:]
[Screenshot or photo to add, with private info blurred: certificate of insurance or state rule page]
[Result so far:]

Questions people ask

Is workers’ comp required with one employee? In many states, yes. Some states have exemptions for very small employers. Check your state agency.

Where do I get it? From a private insurer, a state fund or program, or self-insurance if you qualify.

Does it cover me as the owner? It depends on your state and business type. Ask your insurance professional.

Do I need it for contractors? Usually not on your policy, but collect their certificates. If they’re really employees, you may need to cover them.

Audit check

Question: Does the business have the workers’ compensation coverage its state requires, with proof on file?
Pass looks like: State rule checked and noted. Policy in force before the first hire. Notices posted. Subcontractor certificates on file. Injury process in place.
Fail looks like: No policy with employees on payroll. Wrong job class. No subcontractor certificates. No injury reporting process.
Evidence to collect: Policy, certificate, state rule notes, notice photo, subcontractor certificates, and audit results.

Where this fits

Do this first: 10.3.6 New-Hire Reporting

Do this next: 10.4.1 Business Operating Account

Sources

U.S. Department of Labor, "Workers' Compensation" (checked October 17, 2026)
U.S. Department of Labor, Office of Workers' Compensation Programs, "State Workers' Compensation Officials" (checked October 17, 2026)
SBA, "Pay taxes" (checked October 17, 2026)

This page explains general rules and Bill's own experience. It is not legal, tax, or insurance advice. Talk to a qualified professional about your situation.