Workers Comp Insurance For Small Business: Costs + Requirements

Q: Is workers' comp required for 1 employee?

Yes in 49 states (Texas optional). Part-time counts.

Q: Do 1099 contractors need workers' comp?

No, but verify true independent contractor status (IRS 20 factors).

Q: Can small businesses opt out of workers' comp?

Only sole proprietors/officers in most states. Employees cannot opt out.

Q: How is workers' comp premium calculated?

Payroll x industry rate / 100. Example: $50K payroll x 2.0 rate = $1,000/year.

Q: What injuries are NOT covered?

Intentional self-injury, intoxication, horseplay, commuting accidents.

Q: Can employees sue despite workers' comp?

Generally no (exclusive remedy doctrine). Gross negligence exceptions rare.

Q: What's the fine for no workers' comp coverage?

$1,000–$100,000+ per incident + 2x premium retroactively.

Workers comp insurance for small businesses covers employee injuries and illnesses from work, paying medical bills, lost wages, and rehabilitation costs. Legally required in nearly all states for businesses with employees, with average costs of $50–$200+ per month based on payroll and industry risk.

This guide explains state requirements, 2026 pricing by industry, real claim examples, exemptions for small businesses, top providers, cost reduction strategies, and compliance checklists. Essential for any small business owner hiring employees.

What Is Workers’ Compensation Insurance?

Workers’ comp is a no-fault system where employers purchase insurance to cover work-related injuries/illnesses regardless of blame. Employees get benefits; employers get legal protection from lawsuits.

What it covers:

Medical treatment (doctor visits, hospital, rehab)
Lost wages (typically 66% of average weekly wage)
Permanent disability payments
Death benefits (family support)

Legal exchange: Employees waive right to sue employer in exchange for guaranteed benefits.

Who Needs Workers’ Comp Insurance?

State-by-state requirements (2026):

Business Situation	Required In	Exemptions
1+ employees	50 states	None (TX optional)
Part-time employees	All states	None
Family members	Varies	Some states exempt immediate family
1099 contractors	Never	Verify independent contractor status
0 employees (solo)	Never	Corporate officers may need

Texas exception: Optional but recommended (employees can sue without it).

Corporate officers/LLC members: Often must carry coverage or file exemption.

Workers’ Comp Costs Explained (2026 Rates)

Premium calculation: Rate x Payroll / 100

Industry rates (per $100 payroll):

Industry	Rate per $100 Payroll	Monthly Cost (1 employee, $4K/month)
Office/Professional	$0.75–$1.50	$30–$60
Retail	$1.20–$2.50	$48–$100
Restaurant	$2.50–$5.00	$100–$200
Construction	$5.00–$15.00+	$200–$600+
Manufacturing	$1.50–$4.00	$60–$160
IT/Consulting	$0.50–$1.00	$20–$40

Example calculations:

Restaurant, 2 employees, $8K monthly payroll
Rate: $3.75/$100 → $8,000 x 0.0375 = $300/month

Small business discounts:

Payroll <$50K: 10–20% new business credit
Experience modification rating (EMR) <1.0: 10–30%
Safety program: 5–15%

State Minimum Requirements (2026)

State	Employees Required	Key Notes
California	1	Strictest regulations
New York	1	High rates
Texas	0 (optional)	Only state
Florida	1	Construction minimums
Illinois	1+ OR $20K payroll	Corporate officers
Massachusetts	1	Trust fund option

Multi-state operations: Highest state requirements apply.

Real Workers’ Comp Claims (Small Business Examples)

Retail Store ($28K claim):

Employee slips on wet floor, fractures wrist
Medical: $12K | Lost wages: $10K | PT: $6K
→ 8 weeks coverage

Landscaping ($65K):

Worker falls from ladder, herniated disc
Surgery: $25K | Disability: $28K | Rehab: $12K
→ 6 months coverage

Restaurant ($42K):

Cook suffers repetitive strain (carpal tunnel)
Surgery: $18K | Lost wages: $20K | Vocational rehab: $4K

Office ($15K):

Employee trips over cable, sprained ankle
ER + PT: $15K (2 months)

Average claim cost: $41,000 (National Council on Compensation Insurance 2026).

Small Business Exemptions & Alternatives

Possible exemptions (verify by state):

Exemption Type	Eligible Businesses	Requirements
Sole Proprietors	Always	File exemption form
Corporate Officers	LLC/S-Corp owners	State-specific % ownership
Immediate Family	Spouse/children	Some states only
Partners	General partnerships	File waiver

Texas alternative: Non-subscriber program (wavier + safety program).

Self-insurance: Rare for businesses <500 employees.

Top 8 Workers’ Comp Providers for Small Business (2026)

Provider	Best For	Minimum Premium	EMR Support	Quote Time
The Hartford	All industries	$25/month	Excellent	1 day
Travelers	Construction	$30/month	Group programs	2 days
AmTrust	Restaurants/retail	$20/month	Small business specialist	Same day
Next Insurance	Low payroll	$15/month	Instant online	5 min
State Compensation Insurance Fund	CA businesses	State minimum	Mandatory option	Varies
Liberty Mutual	Multi-state	$35/month	Risk management	2 days
Old Republic	Manufacturing	$40/month	Safety consulting	1 day
Markel	High-risk	$50/month	Flexible terms	Same day

Cost Reduction Strategies (Save 25–50%)

Immediate savings:

Strategy	Savings Potential	Implementation
Payroll accuracy	10–20%	Quarterly audits
Experience mod improvement	20–50%	Safety training
Higher deductible	15–30%	$500–$2,500
Safety program	5–20%	OSHA 10-hour training
Schedule rating	10–25%	Documented procedures
Group captives	15–30%	Industry associations

Safety ROI: Every $1 in safety training saves $4–$6 in premiums.

Multi-State Operations Coverage

Operating in 3+ states?

Option 1: Monopolistic states (4 states require state fund)
Option 2: Multiple policies (complex)
Option 3: PEO (Professional Employer Org) – Recommended

PEO benefits:

One policy covers all states
20–40% premium savings
HR/compliance support
$100–$300/month + payroll %

Filing Workers’ Comp Claims (Step-by-Step)

24-hour rule: Report ALL injuries immediately.

Hour 1: First aid + incident report
Day 1: Notify insurer (form + photos)
Day 2: Employee sees doctor (approved network)
Week 1: Insurer approves/disputes claim
Weeks 2-4: Medical treatment authorization

Red flags triggering investigation:

Friday night injuries
No witnesses
Pre-existing conditions
Drug/alcohol involvement

Compliance Checklist (Avoid $100K+ Fines)

Monthly verification:

□ Employee count < exemption threshold?
□ Independent contractors properly classified? 
□ Corporate officer exemption current?
□ Multi-state coverage adequate?
□ Payroll reports accurate?
□ Safety meetings documented?
□ Posted workers' comp posters?
□ EMR <1.25?

Annual renewal:

□ Audit previous 12 months payroll
□ Update employee classifications
□ Review state minimum requirements
□ Shop 3 carriers for renewal

Independent Contractor vs Employee Classification

Workers’ comp exposure:

True Contractor	Misclassified Employee
✅ Sets own hours	❌ Dictates schedule
✅ Own tools	❌ Uses company tools
✅ Multiple clients	❌ Exclusive relationship
✅ Own business entity	❌ W-2 employee

IRS 20-factor test + state DOL rules apply. Penalty for misclassification: 2x premiums + fines.

Tax Benefits & Deductions

100% deductible:

Workers' comp premiums (Schedule C Line 15)
Paid claims/deductibles
Safety training costs
PEO service fees

Premium credits: Federal jobs credit (5%), drug-free workplace (5%).

Frequently Asked Questions

Is workers’ comp required for 1 employee?