Minimum Employees Needed for Workers' Compensation Insurance

Most workers' compensation coverage is sold by private insurance companies.
Most workers' compensation coverage is sold by private insurance companies. (Image: Keith Brofsky/Photodisc/Getty Images)

If you own a business, chances are good that you need workers' compensation insurance. This type of insurance pays benefits to workers who are injured on the job. Coverage is mandatory in nearly every state for almost all employees. Whether or not your business requires workers' compensation depends largely on where the business is located and the type of business you operate.

Varies by State

The safest way to ensure that you are in compliance with your state's workers' compensation insurance laws is to buy a policy when you hire your first employee. Many states, such as New Hampshire, require coverage for every employee in the state, regardless of the size of the business. Others allow very small businesses exemptions until they hire a certain number of people. Wisconsin, for example, does not require coverage for businesses with fewer than five employees, and New Mexico exempts those with fewer than three. Texas does not require coverage at all.

Varies by Industry

Even in states that allow small business exemptions, certain types of business may be required to carry coverage even if they have fewer than the minimum number of employees. Typically, as with New Mexico and Missouri, these are businesses in the construction or contracting trades. Conversely, those same states offer exemptions to other employers even with many employees, including farm laborers, domestic servants, real estate agents and certain types of salespeople.

Business Owner Coverage

Generally, business owners are exempt from coverage requirements. Specific laws governing this class of workers varies by state, but typically sole proprietors, partners and some corporate officers only need to buy coverage for their employees, and not themselves. Before you opt out of coverage, however, verify that this is legal in your state, because workers' compensation violations often carry large financial penalties that could seriously impact your business' bottom line.

Optional Coverage

If you want to buy workers' compensation insurance, generally you can. The minimum employee threshold is established as a basis for exemptions from state mandates, but you can typically buy coverage even when it is not required. For example, if you are a sole proprietor in Missouri with two employees, coverage is not required for any of you. If you choose to, however, you can buy a policy for your employees and include yourself.

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