What Role Does the Government Play in Workers’ Comp Insurance?

As a business owner, you’re familiar with workers’ compensation—the insurance policy that pays for medical expenses if an employee gets injured on the job. This coverage protects you from costly out-of-pocket expenses and prevents employees from suing the company after an accident. Without it, you’d operate with the constant fear that a single incident could end your business.

But workers’ comp insurance isn’t just nice to have; most businesses legally have to have it. If you’re starting a new business or looking to switch insurance providers, you need to take the time to review the specific workers compensation laws that apply to your business.

Federal Government

The U.S. federal government does not regulate workers’ compensation insurance; state governments set the rules and requirements and enforce them. However, adherence to federal laws regarding workplace safety plays a significant role in preventing workers’ comp injuries. Business owners also have to abide by these if they hope to be accepted by an insurance provider.

The U.S. Department of Labor, through the Occupational Safety and Health Administration (OSHA), sets the standards for a safe work environment. Before you start your search for a workers’ comp policy, you should review each of these requirements and make sure you haven’t slipped up in any of these areas.

State Governments

Each U.S. state has an official organization that oversees workers’ comp insurance. To find your state officials’ website and contact information, click here.

Who Needs Workers’ Comp

In most states, employers are required by law to have workers’ compensation insurance (Texas is the only state where employers are not obligated to have workers’ comp). While many states have similar legislation, requirement details and exceptions vary by state.

For instance, different states have a different maximum number of workers a company can employ without needing workers’ comp coverage. In New Mexico, you must have workers’ comp if you employ three or more people, while in Alabama, you need insurance if you have five or more employees. However, in many states, even businesses with a single employee need workers’ comp.

Where Employers Can Purchase Workers’ Comp

Some states (North Dakota, Washington, Ohio, and Wyoming) have a monopolistic state fund for workers’ compensation that all businesses within the state must use for coverage. Other states allow you to purchase your workers’ compensation policy from the competitive state fund or any private insurance company that meets the legal criteria.

Industry Classification Codes

Insurance providers determine policy rates based on several factors, including a business’s level of risk for employee injuries. To classify businesses based on the associated risks of their line of work, insurers use state-wide industry classification codes. While some states have their own unique classification systems, many states use the National Council on Compensation Insurance (NCCI) codes.

Workers’ Comp Exemptions

Some businesses seek to exempt certain types of workers, such as independent contractors, from their workers’ comp coverage. The permitted exemptions vary by state, as does the process of obtaining the exemption. In some states, exemptions automatically apply, while in others, you have to be approved.


If you don’t have workers’ compensation insurance or don’t meet your state’s minimum coverage requirements, you may face legal penalties. The consequences vary from state to state, with some harsher than others. For example, in California, you could face up to a year in jail or a fine of $10,000 if you fail to offer your workers coverage. New York-based business owners could be charged with a misdemeanor or felony for non-compliance.

Know the Law, No Excuses

When it comes to insuring your business and keeping your employees safe, you can’t afford to cut corners. Before delving into coverage quotes and comparing insurance providers, make sure you fully understand your state’s legal requirements for workers’ compensation. As a business owner, it’s your responsibility to know and comply with the law and offer your employees ample coverage.