What Is Workers' Compensation Insurance?
By BRIX Editorial Team · Updated
Workers' compensation is insurance that pays medical bills and lost wages for employees hurt on the job, regardless of fault, in exchange for limiting their right to sue the employer. Each state decides who must carry it. Some require it from the first employee, some only at three or more, and Texas lets most private employers opt out.
Key takeaways
- Workers' comp is state law. The employee count that triggers it, and who counts, varies by state.
- Construction is often treated more strictly: Florida requires it from the first employee, including corporate officers, unless they file an exemption.
- Premiums are built from payroll: payroll ÷ 100 × your class rate × your experience mod.
- Misclassifying employees as 1099 subs doesn't remove the obligation and can leave you paying claims yourself.
- General liability policies exclude your own employees' injuries; that's what workers' comp is for.
How does workers' compensation work?
Workers' compensation works as a trade-off written into state law. Injured employees get medical care and partial wage replacement without having to prove the employer was at fault. In return, the employer is generally protected from lawsuits over those injuries. California's Division of Workers' Compensation describes it that way: employees get no-fault benefits and, in return, generally can't sue their employers.
You buy coverage from a private insurer, a state fund, or (for large employers) through approved self-insurance. A standard policy has two parts: workers' compensation benefits set by state law, and employer's liability, which covers certain lawsuits that still get through.
Do contractors need workers' comp in my state?
Whether you need workers' comp depends on your state, how many employees you have, and whether you're in construction. Here's how five states set the rule, quoted from the state agencies on October 12, 2026.
| State | Who must carry it | Contractor-specific rules |
|---|---|---|
| California | Every employer, "even if they have only one employee" (DIR). | C-39 roofing, C-8 concrete, C-20 HVAC, C-22 asbestos abatement and D-49 tree service licensees must carry it even with no employees. CSLB says the rule extends to all licensees on January 1, 2028 (delayed from 2026 by SB 1455). |
| Florida | Non-construction employers with 4 or more employees. | Construction employers with 1 or more employees, including owners who are corporate officers or LLC members. Owners can apply for an exemption for themselves. |
| Georgia | Businesses that regularly employ 3 or more people, including regular part-timers. | Corporate officers and LLC members count toward the three, and officer exemptions don't reduce the count. |
| New York | "Virtually all employers" (WCL §§ 2, 3). | Not required for a sole proprietor with no employees, who may still buy a policy covering themselves. |
| Texas | Most private employers can choose whether to carry it. | Employers without coverage (non-subscribers) must report that to the state and report qualifying injuries. Contracts, especially public ones, may still require coverage. |
Our state guides list workers' comp alongside each state's licensing and tax rules, and contractor license covers how boards check coverage before issuing or renewing a license.
How is workers' comp premium calculated?
Workers' comp premium is calculated from your payroll in each job classification. SAIF, Oregon's not-for-profit workers' comp insurer, lays out the steps: multiply payroll by the class rate and divide by 100, multiply by your experience rating modifier if you have one, apply any other factors, then subtract any premium discount.
Premium = (Payroll ÷ 100) × Class rate × Experience mod
- Payroll
- gross wages for employees in that classification for the policy period
- Class rate
- dollars per $100 of payroll for that type of work; roofing costs far more than clerical
- Experience mod
- 1.00 is average; below 1.00 means fewer or smaller claims than expected, above 1.00 means more
For a clearly attributed benchmark: Insureon reports that construction businesses buying through its platform pay an average of $175 a month, or $2,101 a year, for workers' compensation (page updated July 21, 2026). That's an average across many small firms, some with one or two employees, so use it as context, not a quote. Your own number depends on payroll, classification, state and claims history. See contractor bonding and insurance cost.
Workers' comp by trade
| Trade | Main injury exposures | Rate pressure |
|---|---|---|
| Roofing | Falls from height, heat | Among the highest construction rates; some states mandate coverage for roofers with no employees |
| HVAC | Attics and rooftops, lifting equipment, refrigerant | Moderate to high; office and sales staff classified separately |
| Plumbing | Trenches, confined spaces, lifting | Moderate; excavation work can raise it |
| Electrical | Shock, falls from ladders | Moderate; strong safety programs help the mod |
| Landscaping and tree work | Equipment, chainsaws, falls from trees | Tree trimming is rated far higher than mowing |
| Cleaning | Slips, chemicals, repetitive strain | Lower than construction trades, but payroll-heavy |
Workers' comp vs. general liability insurance
Workers' comp covers injuries to your own employees. General liability insurance covers injuries and property damage you cause to other people: the homeowner, a passerby, the customer's house. A standard general liability policy excludes injuries to your own employees, so you need both if you have a crew.
Do 1099 subcontractors need workers' comp?
It depends on whether they're truly independent and whether they carry their own coverage. If an uninsured sub's worker gets hurt on your job, many states can treat you as the employer for comp purposes, and your insurer will usually charge premium on uninsured subs at audit. Collect a certificate of insurance for workers' comp from every sub before they start, and read W-2 vs. 1099 for the classification rules.
Common workers' comp mistakes
- Assuming you're exempt. Owner-officers in Florida construction count unless they file an exemption, and Georgia counts LLC members toward its threshold.
- Calling employees 1099 subs. It doesn't change the comp obligation and can lead to audits and penalties.
- Misclassifying payroll. Office staff in a field class overpays; field techs in a clerical class gets caught at audit.
- Not collecting sub certificates. Uninsured subs are often charged back to you at audit.
- Ignoring the mod. Return-to-work programs and a safety plan reduce claims, and a lower mod saves money for three years.
Frequently asked questions
Do I need workers' comp if I'm a sole proprietor with no employees?
Usually not, though some states make exceptions for construction. New York, for example, doesn't require it for a sole proprietor without employees. California requires certain contractor classes, including roofers, to carry it even with no employees, and CSLB says all licensees must by January 1, 2028.
How many employees before workers' comp is required?
It varies by state. California and New York require it for almost all employers, Florida from 1 employee in construction and 4 outside it, and Georgia at 3 or more regular employees. Texas lets most private employers choose. Check your state agency.
How much is workers' comp for a small contractor?
It's driven by payroll, your job classifications, your state and your claims history. The formula is payroll divided by 100, times your class rate, times your experience mod. Insureon reports an average of $175 a month for construction businesses on its platform, but your quote can be far higher or lower.
Does workers' comp cover subcontractors?
Your policy covers your employees. A sub's workers should be covered by the sub's own policy. If a sub has no coverage, many states can hold the hiring contractor responsible, and insurers often charge premium for uninsured subs at the annual audit.
What is an experience modification rate?
An experience mod compares your actual claims with what's expected for a business of your size and type. A mod of 1.00 is average; 0.85 means you pay 15% less than the base premium, and 1.20 means 20% more. Many commercial customers check it before hiring a contractor.
What happens if I don't carry required workers' comp?
Penalties vary by state but can include fines, stop-work orders, license suspension and personal liability for an injured worker's medical bills and lost wages. Many building departments and licensing boards also require proof of coverage before issuing permits or licenses.
Related
- What Is General Liability Insurance for Contractors?What general liability insurance covers for contractors, what it excludes, which states require it to hold a license, and what drives the premium.
- What Is a Certificate of Insurance?What a certificate of insurance is, what it does and doesn't prove, how to read one from a sub, and what licensing boards and GCs require on it.
- How Much Do Contractor Bonding and Insurance Cost?What contractors pay for bonds, general liability, workers' comp and auto, with sourced benchmarks, the cost drivers and how to price it into your rates.
- What Is a Contractor License?What a contractor license is, when you need one, and how six states set dollar thresholds, bonds and insurance, with links to each licensing board.
- W-2 vs. 1099: What's the Difference for Contractors?W-2 employee or 1099 subcontractor? The IRS control test explained with real construction examples, the 2026 tax cost of each, and misclassification risks.
- What Is Labor Burden?Labor burden is what an employee costs beyond wages: payroll taxes, workers' comp, benefits. See the formula, 2026 tax rates and a tech's true hourly cost.
- True Cost of an Employee Calculator for Trades BusinessesSee what an hourly employee really costs: wages, 7.65% employer FICA, FUTA, SUTA, workers' comp and benefits, per paid and per billable hour.
- AI automation for small business, built around how your shop already worksCustom AI automations built and set up for your trades business: the follow-ups, reminders and hand-offs your office does by hand, done for you.
- What Is a Mechanic's Lien?How a mechanic's lien works for contractors, with notice, filing and enforcement deadlines from six state statutes and a worked example.
- What Is a Lien Waiver?What a lien waiver is, conditional vs. unconditional and progress vs. final waivers, and which states require statutory forms, with sources.
Sources
- California DIR, Division of Workers' Compensation, Employer information (checked October 12, 2026)
- CSLB Industry Bulletin, New Law Changes in 2025 (SB 1455 workers' comp delay) (checked October 12, 2026)
- Florida Division of Workers' Compensation, Coverage requirements (checked October 12, 2026)
- Georgia State Board of Workers' Compensation, Workers' Compensation Insurance FAQs (checked October 12, 2026)
- New York Workers' Compensation Board, Coverage requirements (checked October 12, 2026)
- Texas Department of Insurance, Division of Workers' Compensation, Employer resources (checked October 12, 2026)
- SAIF, Premium and rate overview (checked October 12, 2026)
- Insureon, Construction contractor insurance cost (industry data, updated July 21, 2026) (checked October 12, 2026)