Who Needs Workers Compensation Coverage? Must-Know Laws in 2023

Workers compensation provides medical, wage, and rehabilitation benefits to employees injured on the job. But not all businesses are required to carry workers comp policies. Rules differ among states regarding which employers must provide coverage. Understanding current laws is essential to ensure your business has proper protection.

Here’s what you need to know about who needs workers compensation coverage in 2023.

Most Private Employers

The majority of private companies with employees must carry workers compensation insurance. This includes corporations, LLCs, partnerships, and sole proprietors. Typical exceptions are:

Very small businesses with just a few employees.
Some agricultural operations.
Domestic workers.
Casual laborers.

Check your state statutes, as exemptions for small employers vary. Businesses using independent contractors can’t exclude workers comp.

Employees vs. Independent Contractors

A key factor is properly classifying workers as employees or independent contractors. True independent contractors with their own business entities are responsible for providing their own insurance coverage.

But employers often misclassify workers as independent contractors when they should be treated as employees for compensation purposes. Factors determining employee status include:

Level of control by the employer
Permanence of working relationship
Worker’s economic dependance on the employer
Nature of the services provided

Misclassifying employees opens businesses up to lawsuits. Know the distinctions in your state.

Sole Proprietors and Partners

Sole owners and partners in a partnership are not required to cover themselves for workers compensation. But they must still maintain policies to cover any W-2 employees.

Sole proprietors and partners can elect to purchase a workers comp policy to get coverage for themselves. This is recommended for high-risk occupations.

Partners may be considered employees depending on the percentage of ownership and level of control. Check your state’s exact partnership rules.

LLC Members

Rules for limited liability company members vary by state. In some states LLC members are automatically exempt like sole proprietors.

In other states coverage depends factors like:

Level of ownership percentage - minority members may be seen as employees.
Level of control in the company.
Protections under the LLC operating agreement.

Get clear guidance from your insurance broker or attorney on requirements.

Home Healthcare Workers

Home health aides, personal care aides, and similar domestic workers employed by home health agencies and living assistance companies must be covered by workers comp.

But someone hired directly by a homeowner would typically be exempt. Know exactly which workers fall under employee vs independent contractor status.

Agricultural Businesses

Farm owners and workers have unique rules regarding required coverage. Compensation laws for agriculture date back to when policies were less common.

Typical thresholds for exemption include:

Small family farms with just a few employees.
Farms below a certain number of acres or animals.
Seasonal or migrant farm workers.

But larger commercial farming and ranching operations today must comply with standard rules. Check state statutes for agriculture and ranch cutoffs.

Construction Companies

Nearly all construction companies must carry workers compensation, regardless of size. This includes general contractors, subcontractors, and individual trades like carpenters, plumbers, roofers.

Construction is considered especially high-risk for injuries. Lower risk trades like painting or flooring still require coverage.

Sole proprietors acting as individual handymen may be exempt depending on state laws. But incorporating brings obligations.

Trucking and Transportation

Commercial trucking companies and delivery services must cover all drivers and transportation workers under workers comp. Independent owner-operators need their own policies.

Public transportation providers like transit authorities, airport shuttles, rideshare services also require coverage despite vehicles having insurance. Vehicular accidents can still result in employee injury claims.

Staffing and Temp Agencies

Businesses providing temporary or contract workers must maintain workers compensation policies. This covers both:

Staffing agency’s own employees.
Temporary workers leased out to client companies.

Leased workers become the responsibility of the staffing agency for work comp purposes, not the client.

Joint employment issues can arise in claims involving temporary workers. Know rules in your state for dividing liability.

Nonprofit Organizations

Most nonprofits and charities employing workers must carry workers compensation insurance. The only exceptions are typically small religious organizations or amateur sports clubs.

But larger nonprofits with paid staff fall under the same requirements as private companies. Fundraising for charity doesn’t exempt coverage obligations for employees.

Government Employees

State and local government employees are covered under workers compensation systems managed directly by the state. This includes positions like:

Teachers
Police officers
Firefighters
DMV workers

Federal employees are covered under the Federal Employees Compensation Act (FECA) overseen by the U.S. Department of Labor.

Key Factors in Coverage Requirements

While specific business, worker, and ownership types matter, as highlighted above, some core factors generally determine requirements:

Having employees – Businesses without W-2 employees rarely need workers compensation. Independent contractors are responsible for themselves.
Operating for profit – Nonprofits not paying salaries may be exempt in some states.
Level of risk – Higher-risk industries for workplace injuries like construction and manufacturing typically need coverage regardless of company size.
Employer size – Larger employers are required to carry workers comp. Small businesses may be exempt depending on state law thresholds.

Penalties for Lack of Coverage

If a business required to carry workers compensation is caught without coverage, significant penalties can be assessed:

Fines up to $25,000 in some states.
Civil lawsuits from injured employees.
Jail time in severe cases of deliberate failure to insure.

Getting proper coverage protects employers from major liability and penalties.

Independent Contractor Compliance

Classifying workers correctly as employees vs independent contractors is crucial:

Mistakenly calling employees independent contractors illegally denies them workers comp rights.
Incorrectly labeling independent contractors as employees results in unnecessary insurance costs.

Using contractor compliance best practices avoids misclassification problems.

Know Your State Laws and Options

Research requirements specific to your state and business type. Statutes and rules vary on coverage obligations.
Speak with an insurance broker or attorney experienced in workers compensation regulations in your state.
Consider coverage options like alternative plans in states allowing them alongside traditional insurance.

Understanding if and when your company needs workers compensation, as well as contractor classification, ensures you operate legally and protect your business.

Conclusion

While rules differ among states, most private companies with employees need workers compensation policies. Exceptions exist for sole proprietors, partners, small farms, and certain nonprofits. Independent contractors obtain their own coverage. Construction and transportation businesses almost always require insurance. Classifying workers properly as employees versus contractors is crucial. Check your state statutes for thresholds and nuances so your business has adequate and compliant coverage.