What Is Workers' Compensation Insurance?

Workers' compensation insurance provides benefits to employees who are injured or become ill due to their job. It is a legal requirement for most employers.

Who must carry it. Nearly every state requires employers to have workers' compensation insurance. Requirements vary:

Most states require coverage with 1 or more employees.

Some states exempt businesses with fewer than 3-5 employees.

Texas is the only state where coverage is optional for most private employers.

What it covers:

Medical expenses related to the workplace injury or illness

A portion of lost wages during recovery (typically 60-70%)

Rehabilitation and retraining costs

Disability benefits (temporary and permanent)

Death benefits for dependents

How to obtain coverage:

Purchase through a private insurance company

Through your state's workers' compensation fund (some states require this)

Self-insurance (available to large employers who meet financial requirements)

Cost factors. Premiums are based on your industry, payroll size, claims history, and state rates. High-risk industries (construction, manufacturing) pay more than low-risk ones (office work).

Penalties for non-compliance:

Fines (often $1,000+ per day of non-compliance)

Criminal charges in some states

Personal liability for employee injuries

Stop-work orders

Inability to bid on government contracts

The exclusive remedy. Workers' compensation is generally the exclusive remedy for workplace injuries, meaning employees typically cannot sue their employer for negligence in exchange for guaranteed benefits.

This is legal information, not legal advice.