Do I Need Workers' Compensation Insurance for a Business?

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Workers' compensation laws are designed to protect workers injured on the job, regardless of fault. Accidents occur even in the safest work environments. According to the Bureau of Labor Statistics' Census of Fatal Occupational Injuries 2009 Summary, 4,340 fatal workplace injuries occurred in the United States. Ninety percent of all these fatalities occurred in private industry jobs. Most states have laws requiring employers to purchase workers' compensation insurance. These laws vary from state to state.


Mandatory workers' compensation laws began in the United States in 1911. Before this time, workers injured on the job had no recourse but to take legal action against their employers. The "no-fault" workers' compensation laws enabled workers to receive compensation for their injuries and death benefits for family members, regardless of fault, while limiting the obligations of employers in these injuries. Workers' compensation insurance protects injured workers, while preventing the employer from having to pay the employee's medical expenses out of pocket.

State Laws

Most states mandate employers to provide workers' compensation insurance for their employees. Texas and New Jersey do not require employers to purchase workers' compensation insurance. Five states and two U.S. territories -- Washington, West Virginia, Wyoming, North Dakota, Ohio, the U.S. Virgin Islands and Puerto Rico -- require employers to purchase this insurance from a state-operated fund. These states are referred to as monopolistic states. In all other states, employers may purchase coverage from an insurance company.


Partnerships and sole proprietors are not required to purchase workers' compensation coverage unless they have other employees. While this coverage is not required, it is possible to purchase a policy that will cover owners and partners. State laws for workers' compensation frequently change, so it is always a good idea to check with your state's department of insurance's workers' compensation division, for the latest legislation. There are also some exceptions excluding employees who work strictly on commission. Again, these laws vary from state to state.


As a general rule, if you have employees other than the owners of a business, you need to purchase a workers' compensation policy. Even if the law of your state does not require you to purchase this insurance, it is in your best interest to do so. Without a workers' compensation policy, you could find yourself legally responsibility for any deaths or injuries occurring to your employees. In the case of death, you could also be responsible for lifetime benefits the court may award to the deceased worker's dependents.