What Is Workers’ Compensation Insurance and Do You Need It?
If you own a business in the United States, workers’ compensation insurance is one of the most important types of coverage you need to understand. Whether you have one employee or one hundred, workers’ comp protects both your workers and your business when a job-related injury or illness occurs.
In this guide, we explain exactly what workers’ compensation insurance is, who legally needs it, what it covers, and how much it costs for small businesses in the USA.
What Is Workers’ Compensation Insurance?
Workers’ compensation insurance often called workers’ comp is a type of business insurance that provides benefits to employees who suffer work-related injuries or illnesses. In exchange for these benefits, employees generally give up the right to sue their employer for negligence.
Workers’ comp covers medical expenses, lost wages, rehabilitation costs, and death benefits if a worker is injured on the job. It protects the employee who gets hurt and protects the business owner from costly lawsuits.
What Does Workers’ Compensation Insurance Cover?
- Medical expenses related to the work injury or illness
- A portion of lost wages while the employee cannot work (typically 60–70% of their regular pay)
- Rehabilitation costs including physical therapy
- Permanent disability benefits if the injury causes long-term impairment
- Death benefits and funeral expenses if a worker dies due to a work-related incident
Workers’ comp does not cover injuries that happen outside of work, injuries caused by intentional self-harm, or injuries that occur while an employee is intoxicated or violating company policy.
Do You Legally Need Workers’ Compensation Insurance?
In the United States, workers’ compensation is required by law in almost every state for businesses that have employees. Each state sets its own rules, but most require any business with one or more employees to carry workers’ comp coverage.
In New Jersey, where SimpliInsured is based, virtually all employers with employees must carry workers’ compensation insurance. Failure to carry required workers’ comp coverage can result in significant fines, penalties, and even criminal charges in some states.
Some categories that may be exempt in certain states include sole proprietors with no employees, certain agricultural workers, and domestic workers. However, requirements vary by state, so it is always best to confirm with a licensed insurance agent.
Who Needs Workers’ Compensation Insurance?
- Retail businesses with staff
- Restaurants and food service businesses
- Construction and contracting companies
- Healthcare and medical practices
- Manufacturing businesses
- Any business with part-time, full-time, or seasonal employees
Even if you have only one employee working part-time, you likely need workers’ comp coverage in most US states.
How Much Does Workers’ Compensation Insurance Cost?
The cost of workers’ compensation insurance depends on several factors:
- Your industry and the type of work your employees do (high-risk industries like construction pay more)
- Your total payroll (premiums are calculated per $100 of payroll)
- Your claims history (businesses with more claims pay higher premiums)
- The state where you operate
On average, small businesses in the USA pay between $0.75 and $2.74 per $100 of payroll for workers’ comp insurance. A business with $200,000 in annual payroll might pay between $1,500 and $5,500 per year for coverage.
High-risk industries like roofing or logging can pay significantly more, while low-risk office businesses pay toward the lower end.
What Happens If You Do Not Have Workers’ Compensation Insurance?
Operating without required workers’ compensation coverage is illegal and can have serious consequences:
- Fines and penalties from your state labor department
- Personal liability for all medical bills and lost wages if an employee gets hurt
- Lawsuits from injured employees
- Criminal charges in some states for willful non-compliance
- Loss of your business license
How Does the Workers’ Compensation Claims Process Work?
- The employee reports the injury to their employer as soon as possible
- The employer files a workers’ comp claim with their insurance carrier
- The insurer investigates the claim and determines coverage
- The injured employee receives medical treatment (usually with approved providers)
- Lost wage benefits begin after a waiting period (typically 3–7 days depending on the state)
- The claim is resolved through settlement, full recovery, or disability determination
How SimpliInsured Can Help
At SimpliInsured, we help small and medium-sized businesses in New Jersey find the right workers’ compensation coverage at competitive rates. Our business insurance experts compare policies from multiple carriers, help you understand your state’s specific requirements, and make sure you are fully protected.
Call us at (888) 974-6754 or visit SimpliInsured.com to get a free workers’ compensation insurance quote for your business today.
Frequently Asked Questions
Does workers’ comp cover independent contractors?
Generally, no. Independent contractors are not considered employees, so workers’ comp typically does not cover them. However, misclassifying employees as contractors is a serious legal risk. Some states and industries have specific rules around this, so consult an insurance agent or attorney if you are unsure.
Can a sole proprietor get workers’ compensation insurance?
Yes. While sole proprietors with no employees are often exempt from the requirement, they can voluntarily purchase workers’ comp coverage to protect themselves from work-related injuries.
What is an experience modification factor (EMR)?
Your EMR (also called an e-mod) is a number that reflects your company’s claims history relative to other businesses in your industry. An EMR below 1.0 means you have fewer claims than average and may pay lower premiums. An EMR above 1.0 means higher premiums.