Workers’ Compensation Insurance Laws that Vary by State

States, not the federal government, regulate workers’ compensation laws. That means your business’s compensation requirements will depend on which state your business is located in and where your employees reside. If you hire employees from multiple states or have locations in different states, that means you may have different rules and regulations for each of your sites.

Because requirements vary by state, your business may have different workers’ compensation policy options for each location or out-of-state workers. To determine if you will need to offer other policies for different workers or sites, you’ll need to first research workers compensation laws by state. To begin your search, you’ll need to learn about which workers’ compensation laws are most likely to vary by state how to compare those laws.

Policy Purchasing Options

All states except Texas require businesses to provide workers’ compensation. There are two models states can use to fund workers’ compensation: monopolistic and competitive state funds.

Under the monopolistic state fund model, states require businesses to purchase workers’ compensation insurance through the state fund. That means employers cannot purchase a policy from a private insurance company.

Competitive state fund models allow businesses to choose a private insurance provider in a competitive, capitalistic market. Most states also provide a state-funded provider, but it is not required to select one of these providers.

Who Needs Coverage

Which employers and employees need workers’ compensation coverage varies by state. Most states will use several factors to make that determination. Those factors often include your workforce’s size, what industry your business is in, the perceived daily risks your employees encounter, and whether you employ out-of-state employees or independent contractors.

For example, in Arizona, your business will need workers’ compensation if you have more than one employee. However, in Arkansas, you can forego coverage until you hire three employees. You may be exempt from needing workers’ compensation in California if you’re employed by a parent, spouse, or another relative. You can compare other states’ laws determining who needs coverage here.

Coverage Minimums

The minimum coverage you must offer employees will also vary by state. Coverage minimums determine the lowest bar of what your workers’ compensation must legally provide. Minimums require specific standards, such as how much of a medical bill your employees won’t have to pay for or how much in missed wages an injured employee will receive.

In Hawaii, coverage minimums include disfigurement pay, which Georgia doesn’t require. However, Georgia also has higher requirements than some states for subcontractors working in construction. Many states require higher minimums for industries they consider to have higher risks than most other industries.

To determine if an industry needs a higher minimum, states often use some variation of industry codes. These codes use several actors to determine how likely your employees are to need workers’ compensation, such as the work performed and how high-risk their environment is.

Several states will use the National Council on Compensation Insurance codes to make this determination. These codes assign your industry a four-digit code to determine using collected data on how often employees in your industry needed compensation. However, other states use their classification systems.

Applying for Exemptions

Most states allow certain types of employees and employers to apply for workers’ compensation exemption. In most states, employers are exempt, as are any businesses with fewer than three employees. However, requirements will vary by state.

In some states, exempt employees and businesses will be automatically exempt and will need no further action. Other states will require you to apply for an exemption. Check your state’s workers’ compensation website to determine if you need to apply for one.

The Consequences of Non-Compliance

Businesses can face penalties for being non-compliant with their state’s minimum compensation requirements. Again, those penalties vary by state. Michigan businesses can a daily $1,000 fine for every day they are non-compliant. Business owners can also meet 30 days to six months in jail. In New York, businesses can receive a $2,000 fine for every 10-day period they’re non-compliant.

Workers’ Compensation for Your Business

When determining your business’s compensation plans, you’ll need to decide if out-of-state employees, independent contractors, or other businesses’ locations affect what minimum requirement you offer.

Requirements can vary significantly by state, and research into how laws vary can save from being non-compliant. No matter which states you operate in, being non-compliant can result in hefty fees or even jail time that could be easily avoided by digging deeper into your state requirements.