Does a small business need workers' compensation insurance?
In almost every state, yes, and in several the duty starts at the first employee. Texas is the main exception, but an uninsured employer there loses its defences in an injury claim, which is usually the more expensive outcome.
The answer differs between the federal level and the states, see the rows below.
The answer by level
State level
Workers' compensation is a state system: California requires every employer with even one employee to carry insurance or be self insured.
Cal. Lab. Code § 3700, compulsory workers' compensation insuranceThreshold
Texas is the exception, where private coverage is elective and a non subscribing employer loses the common law defences in an employee injury claim.
Tex. Lab. Code § 406.002, elective workers' compensation coverageFederal level
Federal occupational safety duties apply regardless of size, while routine injury recordkeeping is partially exempt below 11 employees.
29 U.S.C. §§ 651 to 678, 29 CFR Parts 1904 and 1910
Source lines
- State labour codes require coverage and set the point at which it becomes compulsory.
- Where coverage is elective, the statute removes the employer's common law defences if it does not subscribe.
- Federal safety duties apply from the first employee, with only recordkeeping partially exempt below 11 employees.
What it means for the company
Coverage is checked per state of work, not per state of registration. Remote staff create the duty where they sit.
| Level | Requirement | Source |
|---|---|---|
| State level | Workers' compensation is a state system: California requires every employer with even one employee to carry insurance or be self insured. | Cal. Lab. Code § 3700, compulsory workers' compensation insurance |
| Threshold | Texas is the exception, where private coverage is elective and a non subscribing employer loses the common law defences in an employee injury claim. | Tex. Lab. Code § 406.002, elective workers' compensation coverage |
| Federal level | Federal occupational safety duties apply regardless of size, while routine injury recordkeeping is partially exempt below 11 employees. | 29 U.S.C. §§ 651 to 678, 29 CFR Parts 1904 and 1910 |
What it means for the individual
An injured worker with a covered employer is compensated without proving fault, which is the trade for the limit on damages.
Source lines
- Occupational Safety and Health Act29 U.S.C. §§ 651 to 678, 29 CFR Parts 1904 and 1910 · read 2026-08-25 · proof 91ef364e5ca03028
- California Department of Industrial RelationsCal. Lab. Code § 3700, compulsory workers' compensation insurance · read 2026-08-25 · proof 91ef364e5ca03028Official source
- Texas Department of Insurance, Division of Workers' CompensationTex. Lab. Code § 406.002, elective workers' compensation coverage · read 2026-08-25 · proof 91ef364e5ca03028Official source
Next step
Confirm coverage in every state where an employee performs work, and note the classification code used for each role.
This page reports what the sources say, with the identifier and address of the publisher. It is not legal advice and does not decide an individual matter.
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