Workers’ Comp for Contractors: How to Find Your State’s Rules

Workers’ compensation (workers’ comp) is insurance that pays medical care and lost wages for employees hurt or made sick by their work. For contractors it is also a licensing issue: some state boards won’t issue or renew a license without proof of coverage or an exemption. This guide explains how to find your state’s rule and why construction is often treated differently. It is education only; a licensed insurance agent or broker can explain policies and pricing.

Who sets workers’ comp rules?

Each state does. The U.S. Department of Labor’s Office of Workers’ Compensation Programs keeps a directory of state workers’ compensation officials, linking every state and territory to its own workers’ comp agency. Start there to find the agency for each state where you’ll have employees.

California’s Division of Workers’ Compensation explains the basic trade-off behind these systems: employees get prompt medical treatment for on-the-job injuries no matter who is at fault, and in return they generally can’t sue the employer over those injuries.

When does a contractor have to carry it?

The trigger varies by state and, often, by industry. Three examples from state agencies, each labeled:

• California: employers are required to have workers’ comp even if they have only one employee, according to the Division of Workers’ Compensation. CSLB adds that C-8 concrete, C-20 HVAC, C-22 asbestos abatement, C-39 roofing and C-61/D-49 tree service contractors must carry it whether or not they have employees.
• Florida: the Division of Workers’ Compensation says construction industry employers with one or more employees, counting owners who are corporate officers or LLC members, must have coverage. Non-construction employers have a four-employee threshold. Some business owners can apply for an exemption for themselves if they meet the requirements.
• Texas: the Texas Department of Insurance says private employers can choose to carry workers’ comp, but it is not required in most cases. Employers without coverage (called non-subscribers) must report to the state that they don’t have coverage and must report certain injuries.

Not verified: we haven’t checked every state. Look up your own state’s rule through the Department of Labor directory, and note that a general contractor or customer may require coverage in their contract even where your state doesn’t.

How does workers’ comp affect your license?

Some licensing boards tie the two together. California: to keep an active CSLB license, you either file a certificate of workers’ comp insurance (or a certification of self-insurance) or sign an exemption certifying that you have no employees. CSLB says only insurers licensed to write workers’ comp in California may issue and file those certificates, and certificates must show your license number (or application number). If you hire after filing an exemption, California’s one-employee rule applies, so line up coverage before the person starts work.

See our California CSLB guide and, for other states, our license requirements guide.

What if you hire subcontractors?

This is where many small contractors get surprised. Florida: the state says contractors must make sure all subcontractors have the required workers’ comp before they begin work; if a subcontractor doesn’t have coverage for its employees, those workers become the contractor’s employees, and the contractor is responsible for paying benefits if someone is hurt. Florida also runs a Construction Policy Tracking database that notifies contractors of changes to a subcontractor’s coverage status.

Other states have their own versions of this rule. Collect a certificate of insurance from every sub before work starts, and keep it on file. Whether a helper is a subcontractor or an employee in the first place is a separate question; see our guide on employee vs. independent contractor.

Does workers’ comp cover you, the owner?

It depends on your state and structure. In Florida, construction owners who are corporate officers or LLC members count toward the one-employee rule unless they qualify for and file an exemption. Some states let sole proprietors include or exclude themselves. Ask a licensed agent how your state treats owners, and remember that health insurance and disability insurance are separate products.

How do you get a policy?

Most employers buy workers’ comp from a private insurer licensed in their state, usually through a licensed agent or broker. Some employers are certified to self-insure instead; both California and Texas mention certified self-insurance. Pricing varies by state, trade and payroll, so get a quote from a licensed agent before you bid jobs that will need employees.

Your state insurance department licenses agents and insurers. The National Association of Insurance Commissioners (NAIC) lists every state insurance department, where you can check a license or file a complaint.

What do you do if an employee gets hurt?

Get the employee medical care first. Then follow your state’s reporting steps and deadlines and notify your insurer. Texas: employers with coverage report injuries resulting in more than one day of lost time, and all work-related illnesses and deaths, to their insurance carrier; non-subscribers report them to the Division of Workers’ Compensation. OSHA has separate rules for recording and reporting serious injuries, and offers free, confidential on-site safety consultations for small businesses.

What records should you keep?

Keep a simple folder (paper or digital) for each policy year:

• your policy’s information page and any certificate filed with your licensing board;
• certificates of insurance from every subcontractor, with the dates they cover;
• any exemption you filed, and the date your first employee started;
• payroll records by job and trade; and
• copies of injury reports and your insurer’s claim numbers.

The IRS recordkeeping page is a good model for how long to keep business records in general. Your insurer and state agency can tell you what they expect for workers’ comp.

What comes next?

If you’re about to hire, our first-employee guide covers payroll taxes, Form I-9 and state registrations. For liability, auto and other business coverage, see contractor insurance basics.