Workers' compensation insurance, explained
If you have employees, workers' comp is almost certainly required. Here's what it covers and what drives the price.
Workers' compensation is one of the few business coverages that's legally required in most states once you have employees. It protects both your team and your business when a work-related injury happens.
What it covers
- Medical care for work-related injuries and illnesses.
- Lost wages while an injured employee recovers.
- Disability and rehabilitation benefits.
- Death benefits for an employee's family in a fatal accident.
- Employer liability — helping protect the business from related lawsuits.
When it's required
Most states require workers' comp as soon as you hire employees (sometimes from the first employee, sometimes after a threshold). Rules vary by state and worker classification, and penalties for going without can be severe.
How premiums are calculated
Workers' comp is priced per $100 of payroll, multiplied by a rate that reflects your industry's risk class and your claims history (your 'experience mod'). A clerical team costs far less than a roofing crew. Misclassifying workers is a common, costly mistake.
Managing the cost
Classify employees correctly, invest in workplace safety to keep claims down, and have a commercial specialist shop carriers — rates for the same business can vary. A clean safety record lowers your experience mod over time.
Frequently asked questions
In most states, yes — once you have employees. Requirements vary by state and worker type, and operating without required coverage can bring fines and liability. A commercial specialist can confirm your state's rules.
It's based on your payroll (per $100), your industry's risk classification, and your claims history (experience modifier). Higher-risk occupations and worse claims history mean higher rates.
Generally it covers employees, not true independent contractors — but misclassification is risky. Check your state's rules, since some require coverage for certain contractors.
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