Oct 28, 2026 · Michelle Powell

The short answer: If you have even one employee, you almost certainly need workers’ comp. And in today’s soft insurance market, the cost of carrying it is far smaller than the cost of a single uninsured injury.

This is one of the questions we hear most from small business owners. It usually comes from a reasonable place. Margins are tight, and workers’ comp can feel like one more bill for something that probably won’t happen.

But “probably won’t happen” is doing a lot of work in that sentence. Below, we’ll walk through the myths that get owners in trouble, what coverage actually costs, the rare cases where you can legally skip it, and what happens if you get it wrong.

4 myths that get small business owners in trouble

Most owners who go without coverage aren’t trying to cut corners. They believe a label, a headcount, or a schedule exempts them. Here are the four beliefs I hear most often.

Myth 1: “My workers are 1099 contractors, so I don’t need it.”

Handing someone a 1099 doesn’t make them an independent contractor. What matters is control. If you decide how, when, and where the work gets done, state agencies and courts may treat that person as an employee, whatever their paperwork says. The IRS uses a similar test. It looks at three kinds of evidence: behavioral control, financial control, and the type of relationship between you and the worker. Read the IRS’s guidance on independent contractor or employee status and its Topic No. 762 summary before you classify anyone. If you’re still unsure, the IRS will make a determination for you if you file Form SS-8. Keep in mind that your state and your workers’ comp carrier may apply different rules than the IRS does.

If a misclassified worker gets hurt, you can end up paying their medical bills and lost wages yourself, plus penalties. Even with no injury, it can catch up with you at audit time (more on that below).

The reality: Calling someone a 1099 doesn’t decide it. How much control you have over their work does. If they’re truly independent, ask for their own workers’ comp certificate of insurance and keep it on file.

Myth 2: “I’m too small. It only applies to bigger companies.”

Many owners assume the requirement starts at 10 or 20 employees. In most states, it starts at one. About a dozen states set the threshold at three to five employees, but several of those drop it to one for construction (MoneyGeek). Florida is a good example: non-construction employers need coverage at four or more employees, while construction employers need it at one (Florida Department of Financial Services). Because workers’ comp rules are set state by state, the U.S. Department of Labor points private employers to their state workers’ compensation board for the requirements that apply to them.

And being small is exactly why one claim hurts so much. The average workers’ comp claim for injuries in 2023–2024 was $50,076, according to NCCI data reported by the National Safety Council. Slips and falls averaged $57,314. For many small businesses, that’s the entire cash reserve.

Myth 3: “I only have part-timers or family members.”

Most state laws don’t distinguish between part-time and full-time workers. If someone gets hurt doing work for your business, they generally have the same right to medical care and lost wages whether they work 8 hours a week or 40. Florida, for example, counts part-time staff toward its employee threshold (Florida Division of Workers’ Compensation).

Family members can sometimes be excluded, depending on the state and how the business is set up (Workers’ Comp Exemption Guide). Don’t assume. Check before you rely on it.

The reality: Injuries don’t check the timecard. And since premiums are based on payroll, covering part-timers usually costs less than people expect. If you’re counting on a family exemption, confirm it with your state before you skip coverage.

Myth 4: “My general liability policy covers employee injuries.”

It doesn’t. General liability covers injuries and property damage to other people, like a customer who slips in your shop. Injuries to your own employees are specifically excluded. That’s what workers’ comp is for.

When can you legally skip Workers’ Comp?

For many small businesses, workers’ comp costs less than they fear. Insureon reports its small business customers pay an average of about $54 a month. Your number depends on three things: your payroll, the type of work your people do, and your claims history.

Unlike most insurance, the premium comes from a formula:

Note: This formula estimates your base premium only. It doesn’t include expense constants (flat per-policy fees some carriers charge), taxes and surcharges (which vary by state), or employers liability coverage (protection that sits on top of workers’ comp if an employee sues your company). Your final premium will likely be higher than the formula alone suggests, depending on your carrier and state.

Rough ranges by industry

These are ballpark figures for small businesses. Your state and carrier can move them a lot in either direction.

Industry Rate per $100 of payroll Typical small business premium
Office / clerical $0.20–$0.50 $300–$1,000 a year
Restaurant $2–$4 $1,500–$4,500 a year
Cleaning / janitorial $3–$6 $2,500–$6,000 a year
General contractor $8–$15+ $8,000–$25,000+ a year


What moves your price the most

  • Class codes. Every job has a code with its own rate. Put an office manager under a field-labor code and you can pay many times more than you should.
  • Your Experience MOD. This multiplier reflects your claims history. A new business usually starts at 1.0. A clean record can bring it under 1.0, which works like a discount. Frequent claims push it above 1.0.
  • Your state. Benefit levels and rules differ by state, so the same payroll can cost very different amounts in California and North Dakota.

Why now is a good time to shop

The commercial market has been soft. Workers’ comp has posted 12 straight years of underwriting profit (Business Insurance), and many states have cut rates year after year. New York approved a 22% rate cut this October, and Florida is expecting its 10th straight annual decrease (Lockton).

That won’t last forever. Claim costs are rising, and California rates went up in both 2025 and 2026. If “it’s too expensive” has kept you from getting a quote, it’s worth checking again while carriers are competing for your business.

3 surprises that catch business owners off guard

Even owners who carry coverage get caught by these. They’re the source of most of the frustrated calls in our industry.

  1. The year-end audit bill | Your premium at the start of the year is an estimate based on the payroll you expect. When the policy year ends, the carrier audits your actual payroll. If you hired, gave raises, or simply grew, you’ll get a bill for the difference, and it’s usually due right away.
  1. The 1099 audit trap | Auditors look at what you paid subcontractors, not just your W-2 payroll. For any subcontractor who can’t show a valid workers’ comp certificate of insurance, many carriers add what you paid them to your payroll and charge you premium on it. A few uninsured subs can turn into an audit bill of several thousand dollars.
    The fix: Collect a current certificate from every subcontractor before they start work, and keep it on file.
  1. Minimum premiums | For very small businesses, the formula might come out to $150. But carriers set a minimum premium to cover the cost of issuing a policy. That minimum is often somewhere around $500 to $1,000, depending on the carrier and state.

When you can legally skip it, and why we’d still think twice

There are a few real exceptions:

  • Sole owners with no employees. Most states don’t require you to cover yourself.
  • Owners and officers who opt out. Many states let corporate officers or LLC members file a waiver excluding themselves.
  • Texas. It’s the only state where most private employers can choose not to carry workers’ comp.

Even if you qualify, we’d still recommend coverage in almost every case. Here’s why.

Your clients may require it anyway

Your state may not require workers’ comp, but your customers often will. General contractors, property managers, commercial clients, and government agencies usually want a certificate of insurance before you start work. Without one, you’re shut out of some of the best-paying jobs.

Your health insurance may not cover a work injury

Sole owners often tell us, “I have health insurance, so I’m fine.” Maybe. But some health plans exclude or limit coverage for injuries that happen on the job. Read your plan’s exclusions before you count on it.

In Texas, opting out removes your legal shield

Workers’ comp normally comes with a trade-off called exclusive remedy. Injured employees get their medical bills and lost wages paid, and in return they generally can’t sue you.

Texas employers who opt out (called “non-subscribers”) lose that protection. An injured employee can sue the business directly. And under Texas law, non-subscribers can’t use some common defenses, such as arguing the employee was partly at fault (Texas Labor Code §406.033). One serious accident can be enough to sink the company.

The low-cost option: a “ghost policy”

Say you’re a sole owner doing low-risk work, but a client won’t sign without a certificate of insurance. A ghost policy may be the answer. It’s a real workers’ comp policy, but you’ve excluded yourself, so there’s essentially no payroll to rate. You pay the carrier’s minimum premium, usually somewhere around $500 to $1,000 a year, and you get the certificate you need to win the contract. Please note that ghost policies are not available through weSure or its affiliates.

One important caveat: because you’ve excluded yourself, a ghost policy doesn’t cover your injuries. Not every state or carrier offers one, so ask your agent.

What happens if you don’t have Workers’ Comp?

State enforcement is active, especially in construction, hospitality, and the trades. Investigators run job-site sweeps, check building permits, and compare payroll tax filings against coverage records. The rules differ by state, so here are two of the biggest as examples.

Stop-work orders

In many states, an investigator who finds you uninsured can issue a stop-work order on the spot. Your business stops operating until you get coverage and deal with the penalty. For a contractor, that means pulling your crew off the job in front of your client.

  • Florida: Keep working in violation of a stop-work order and you’re fined $1,000 per day (Fla. Stat. §440.107).
  • California: A stop order can come with a penalty of $1,500 per employee (Cal. Labor Code §3722).

Back premiums and fines

States don’t just fine you for the day you’re caught. They look back at the premium you avoided.

  • Florida: The penalty is twice the premium you should have paid, generally over the prior 12 months, or $1,000, whichever is greater. The lookback extends to 24 months in some cases, such as repeat violations (Fla. Stat. §440.107).
  • California: Penalties can reach $10,000 per employee if an uninsured employee has a compensable claim, capped at $100,000 for that category (Cal. Labor Code §3722).

Personal liability for the injury

This is the part that can end a business. If an employee is hurt while you’re uninsured, you’re typically responsible for their medical bills and lost wages yourself. A bad fall needing surgery can easily run into six figures.

Many states have a fund that pays injured workers of uninsured employers, then comes after the employer to get that money back. Without coverage, you may also lose the exclusive remedy protection, which means your employee can sue you for more.

Criminal charges

In some states, knowingly operating without required coverage is a crime. In California, it’s a misdemeanor punishable by up to a year in county jail and a fine of at least $10,000 (Cal. Labor Code §3700.5). Criminal charges are usually reserved for willful violations, but they’re a real possibility.

A hypothetical: one slip, two outcomes

This is an illustrative example, not a real customer. The numbers are rounded.

Maria runs a small commercial cleaning company in California with two employees and about $70,000 in annual payroll. At a cleaning rate of $4 per $100 of payroll, her workers’ comp would cost roughly $2,800 a year, or about $233 a month.

One evening, an employee slips on a freshly mopped floor and needs surgery on her wrist.

With coverage: Maria reports the claim. The carrier pays the medical bills and the employee’s lost wages. Maria’s experience mod may rise at renewal, but the business keeps running.

Without coverage: The average slip-or-fall claim is about $57,314 (National Safety Council). Maria is now responsible for that herself. In California she could also face a penalty of $10,000 per employee for an uninsured compensable claim, which is $20,000 for her two workers. And her employee could potentially sue her.

With coverage Without coverage
What Maria pays ~$2,800 a year in premium ~$57,300 claim + $20,000 penalty
Business keeps operating Yes Possibly not

That’s roughly $77,300 to save $2,800. For most two-person businesses, that’s the end of the business.

How do you compare Workers’ Comp quotes?

Cheaper isn’t always better. A low quote built on the wrong class code or an unrealistic payroll estimate can cost you more at audit time than the quote you passed on. Go through your policy in detail with your insurance professional, and check these items on every quote:

  • Class codes match what each employee actually does. Ask how each role is coded and why.
  • The payroll estimate is realistic. Include planned hires and raises. Too low means an audit bill later.
  • Subcontractors are accounted for. Do you need certificates from your subs, and how will they be treated at audit?
  • Owners and officers are included or excluded on purpose. Know whether you’re covered yourself.
  • Employer’s liability limits are adequate. This part of the policy covers lawsuits connected to employee injuries.
  • Every state you work in is covered. This matters if your crews ever cross state lines.
  • Payment options fit your cash flow. Compare a large deposit against pay-as-you-go.

Red flag: If one quote is far below the others, find out why before you sign. A misclassified role or a payroll estimate that’s too low usually comes back as an audit bill.

A simpler way to pay: pay-as-you-go workers’ comp

Most of the pain in workers’ comp comes from guessing. You estimate payroll at the start of the year, pay a deposit on that guess, and settle up at audit time. If you hire or grow, you get a surprise bill.

Pay-as-you-go works differently. Your premium is calculated from the payroll you actually run each pay period and paid in small amounts as you go. Your premium tracks your real payroll, so a large deposit and a big year-end adjustment are much less likely.

At weSure, we offer pay-as-you-go workers’ comp, and it works best with Hourly.io, our payroll platform. Because Hourly runs your payroll and your workers’ comp together, your premium is calculated from your real payroll every time you run it. You don’t need to reconcile two systems or rely on an estimate.

We work with contractors, restaurants, retail shops, cleaning and janitorial companies, delivery services, and many more industries, in every state except the four monopolistic states (Ohio, North Dakota, Washington, and Wyoming), where coverage must come from a state fund.

Get a workers’ comp quote from weSure →

Already running payroll? Ask us how Hourly can bring payroll and workers’ comp together.

Frequently asked questions

Do I need workers’ comp if I only have one employee?

In most states, yes. Some states, including Florida, Georgia, and North Carolina, set the threshold at three to five employees for most industries. Several of those still require coverage from the first employee in construction.

Do I need workers’ comp as a sole proprietor?

Usually not by law. But clients may require it, and some health plans limit coverage for work injuries. A ghost policy can get you a certificate of insurance at minimum cost.

Does workers’ comp cover 1099 contractors?

Not unless they’re actually employees. If a contractor doesn’t have their own policy, your carrier may charge you premium on what you paid them at audit time.

How much does workers’ comp cost for a small business?

Insureon’s small business customers average about $54 a month. Office-based businesses often pay a few hundred dollars a year, while contractors can pay many thousands.

Is workers’ comp required in Texas?

Not for most private employers. But Texas employers that opt out can be sued directly by injured employees and can’t use several common legal defenses.

This article is general information, not legal advice. Workers’ compensation requirements, thresholds, and penalties vary by state and change over time. Talk with a licensed insurance professional about your specific situation.

Sources

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