Is Workers’ Comp Mandatory? – Get on the Good Side of the Law - Zupnick Associates

(by Elton Mwangi)

You might be asking if workers’ comp is mandatory if your business has been struggling to stay afloat, especially during the pandemic. So, you furlough a few employees and cut back on expenses. Among your cost reductions is employee benefits.

But cutting back on employee benefits, especially workers’ comp, can take away one of your most essential tools for motivating employees. It can also land you in hot soup; maybe even prison.

Is Workers’ Comp Mandatory?

Yes. Workers’ comp is mandatory in most states. While most states will require employers to buy insurance even with one worker, some states require employers to buy coverage when they have at least a specified number of workers. For instance, New Mexico requires the minimum number of workers to be three and Alabama five.

Many states will consider corporate executives as employees for workers’ compensation purposes.

However, some workers are not covered under workers’ compensation laws, including:

  • Casual employees
  • Independent contractors
  • Domestic workers

Some state laws also exempt:

  • Farm workers
  • Taxi drivers
  • Real estate agents 

Penalties and Fines

Workers’ compensation is regulated by state law. So, each state has its requirements and penalties. Failure to buy the insurance as required by your state can result in jail time, a fine, or both. Learn from states with severe penalties:

  • In Illinois, a company that does not offer workers comp when required will pay $500 for every day they don’t comply. The minimum fine is $10,000.
  • It is a crime not to offer workers’ compensation to employees in California. You can face a maximum jail term of one year, a minimum fine of $10,000, or both. Illegally uninsured companies can face a maximum penalty of $100,000.
  • In Pennsylvania, it’s a felony of the third degree to refuse compliance intentionally. Employers can spend a maximum of seven years in jail and a fine of $15,000.
  • Illegally uninsured companies can face a charge of felony or misdemeanor in New York. You can incur a penalty of $2,000 for every ten days you’re not covered and a fine of between $1,000 and $50,000.

State Fund Workers’ Compensation Insurance

Employers in some states must buy workers’ compensation insurance from the state fund – a monopolistic state fund. These states include:

  • North Dakota
  • Ohio
  • Washington
  • Wyoming

Therefore, if an employer conducts business in a monopolistic state, all employees operating in that state must be insured under a workers’ comp policy bought from the state insurance fund.

Employers can get additional employers liability insurance through stop-gap coverage.

States that Don’t Require Workers’ Comp

The only state that doesn’t require private employers to buy workers’ compensation insurance is Texas. But public employers have to. For over 100 years, Texas has allowed voluntary coverage, which has exposed private employers to lawsuits by injured employees. Consequently, an employer can’t use the employee’s negligence or the negligence of a fellow worker as a defense.

In 2013, Oklahoma passed a law allowing companies to opt-out of workers’ comp requirements if they have an alternative benefit plan offering benefits to injured employees. However, the Oklahoma Workers Compensation Commission declared the law unconstitutional in 2016. The alternative plans had inferior benefits to those provided under the workers’ compensation law.

NCCI States

Two-thirds of states subscribe to the National Council on Compensation Insurance, making them NCCI states. These states permit private insurance companies to sell workers’ comp insurance. Despite running their workers’ compensation bureaus, states rely on NCCI to perform certain administrative functions.

For example, NCCI is responsible for experience rating in numerous states, including calculating experience modifiers. The organization also creates and maintains each state’s classification and rating system.

It develops and publishes the endorsements and forms insurers use in issuing workers comp policies too.


Workers’ comp is mandatory in all states apart from Texas – which makes it voluntary for private employers. Therefore, employers who don’t comply face penalties, fines, and jail terms.

Workers’ compensation laws vary based on the state. While some states require employers to get their insurance from the state fund, others can get their insurance from private insurers.

What does this tell you? The workers’ compensation landscape is uneven, with hills and valleys that require a seasoned benefits advisor to help you navigate. Reach out to Zupnick and Associates for workers’ compensation assistance.


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