Discover why small businesses must prioritize workers’ compensation insurance to avoid legal penalties, protect employees, and ensure financial stability. Stay compliant, secure, and competitive.

As a small business owner, you’re probably used to wearing many hats—handling cash flow, getting customers, and keeping things running without a hitch. But, have you ever thought about whether you need insurance to cover workers’ compensation? You are not alone! Many small business owners downplay this important coverage, thinking it’s just for major companies or high-risk sectors. Neglecting workers’ compensation can put your company at risk of huge financial loss, legal penalties, and damage to your reputation. Let’s look at why this insurance is an absolute safety for your company’s future, not just a “nice-to-have.”

Do Small Businesses Really Need Workers’ Comp. Insurance?

The short answer? Yes. Here’s why:

In numerous respects, these small businesses form the foundation of the U.S. economy. They are small but carry an extremely big burden of responsibility. The Small Business Administration (SBA) says that small businesses, which they define as companies with less than 500 employees and under $10 million in yearly revenue, make up almost all—99.9%—of American firms. Together, these businesses account for about 46% of the private sector workforce and generate 43.5% of the country’s GDP. A lot of small business owners wrongly assume that workers’ comp. insurance is only a must-have for dangerous industries such as construction or manufacturing, despite its big impact.

Legal Obligations Are Non-Negotiable

Workers’ comp. isn’t just a recommendation—it’s legally mandated in 49 out of 50 states for businesses with employees. Even a single part-time worker could trigger coverage requirements. For example:

• In California, failing to carry workers’ comp. may lead to penalties as high as $100,000 and could also result in criminal prosecution.
• In Florida, non-compliant businesses face penalties of $1,000 per employee for every 30 days without coverage.
• Texas is the sole exception, allowing employers to opt-out, but even there, skipping coverage risks lawsuits that could bankrupt an unprotected business.

Beyond Compliance: Building Trust and Loyalty

Today’s workforce demands more than just a salary. According to a Society for Human Resource Management (SHRM) poll, 70% of employees would change jobs for better benefits, including strong workplace safeguards. Workers’ comp. shows that you appreciate your team’s safety, therefore it can:

• Increase retention: Employees remain longer with companies that give their well-being first priority.
• Attract talent: Job seekers now lean more towards companies providing thorough benefits.
• Boost efficiency: A stable workforce is more motivated and concentrated.

Myth Busting

• “I’m a solopreneur—I don’t need it.” While sole proprietors without employees aren’t required to carry coverage, purchasing a policy can still protect you from medical costs if you’re injured on the job.
• “My industry is low-risk.” Even office jobs aren’t immune to slips, repetitive strain injuries, or mental health claims (where applicable).

What IS Covered by Workers’ Comp. Insurance?

Workers’ comp. is designed to protect both employees and employers when workplace injuries or illnesses occur. Here’s what it typically covers:

• Medical Expenses
  • Hospital visits, surgeries, prescriptions, physical therapy, and ongoing care related to the injury.
  • Example: A restaurant worker burns their hand in the kitchen—workers’ comp covers ER bills and follow-up treatments.
• Lost Wages
  • Partial wage replacement (usually 66%-80% of average earnings) if an employee must take time off to recover.
  • Example: A delivery driver with a broken leg receives payments while unable to work for six weeks.
• Disability Benefits
  • Long-term support for permanent disabilities (partial or total).
  • Example: A factory worker loses partial use of their arm and qualifies for ongoing disability payments.
• Rehabilitation Costs
  • Physical therapy, vocational retraining, or job placement services if the employee can’t return to their previous role.
  • Example: A construction worker injured in a fall receives retraining for a less physically demanding position.
• Death Benefits
  • Funeral expenses and survivor benefits (e.g., monthly payments to a spouse or dependents) if a workplace incident is fatal.

What ISN’T Covered by Workers’ Comp. Insurance?

Workers’ comp. serves as a safety net but possesses certain limitations. Understanding these exclusions helps you avoid gaps in protection:

• Intentional Injuries or Misconduct
  • Example: An employee starts a fight at work and gets injured. Workers’ comp won’t cover their medical bills.
  • What to do: Pair workers’ comp with employment practices liability insurance (EPLI) to address workplace misconduct risks.
• Off-Duty Activities
  • Example: A remote employee trips over while making coffee at home. Unless they were performing a work task, the injury isn’t covered.
  • Gray area: Remote work blurs the line between “on-duty” and “off-duty.” Clarify coverage with your insurer.
• Independent Contractors
  • Example: A delivery driver classified as a contractor is injured loading packages. If they’re misclassified (i.e., treated like an employee), your business could face fines from the IRS or state agencies.
  • Solution: Use 1099 compliance checks to verify contractor status and purchase contractor liability insurance if needed.
• Stress or Emotional Claims
  • Example: An employee claims burnout due to workload. Most states deny coverage unless stress is tied to a physical injury (e.g., a nurse developing PTSD after a violent patient attack).
  • Exception: California now allows standalone mental health claims (up to 6 months) under strict conditions.

How Much Does Workers’ Comp. Insurance Cost for Small Businesses?

Workers’ compensation insurance expenses vary depending on the specific risk profile of your company. According to Insureon, small businesses typically pay around $45 each month for insurance, which adds up to about $542 a year. Costs are divided as follows:

• 23% of small businesses pay less than $30 per month.
• 40% pay between $30 and $60 per month.
• 37% pay more than $60 per month.

The National Academy of Social Insurance (NASI) says that, on average, it costs about $1 for every $100 of payroll. However, these premiums can differ based on four main factors:

Industry Risk

High-risk companies have a greater likelihood of workplace injuries, thus they pay more premiums. For instance:

• Construction causes 20% of private-sector workplace deaths, which raises insurance premiums.
• Low-risk sectors like finance and accounting pay the least, with an average of $33 each month.

Here’s an overview of what different industries pay for workers’ comp insurance each month:

Source: Insureon

Payroll Size

To figure out the premium, take the total payroll for the year, divide it by 100, and then multiply that number by the rate. An organization with a payroll of $500,000 and a rate of $1, for instance, would pay $5,000 yearly.

Claims History

Premiums rise with claims history—that is, frequent or serious claims like repetitive injuries or significant accidents. To evaluate future risk, insurance companies examine your claims history. Pro tip: Invest in safety training programs to reduce incidents and qualify for discounts.

State Regulations

Every state establishes its own workers’ comp rules and rates. For instance, Texas lets companies choose to forego coverage; in other states, like California, stringent requirements are in effect.

Conclusion

For small business owners in 2025, worker’s compensation is a requirement, not a luxury. Here at Gonzalez Insurance, we focus on creating policies made just for small businesses. We examine the particular hazards your company has—say you have a bakery, a tech firm, or a lawn care company—and ensure you are covered if someone gets hurt, sick, or has an accident on the job.

Why choose us?

• Customized coverage: No one-size-fits-all policies.
• Cost efficiency: We help you balance compliance and affordability.
• Peace of mind: Focus on growth, not lawsuits or fines.

Don’t wait for an accident to realize you’re underinsured. Contact Gonzalez Insurance today for a free consultation and safeguard your business’s future.

FAQs

1. Do I really need workers’ comp as a small business owner?

Yes, you do! In almost every state, it’s a must if you have any employees, even if they’re part-time. It helps protect you from costly legal and financial issues later on.

2. What does workers’ comp insurance cover?

It usually takes care of medical bills, lost wages, disability payments, rehab costs, and even death benefits if someone gets hurt or sick on the job.

3. Why go with Gonzalez Insurance for my workers’ comp needs?

At Gonzalez Insurance, we focus on creating customized workers’ comp plans for small businesses, making sure you get the right coverage without overpaying!