Workers' Compensation Requirements by State | Employer Thresholds

Workers' Comp: The Rule That Varies More Than Employers Expect

Workers' compensation is often described as a simple rule: hire employees, buy workers' comp. In reality, the point at which coverage becomes mandatory, who counts toward that number, and what happens if you don't comply differ significantly from state to state.

Some states require coverage the moment you hire a single part-time worker. Others don't require it until you have three, four or five employees — but lower that number for construction. Texas doesn't mandate it at all for private employers. Farm and household workers are excluded in many states. The variation is wide enough that a multi-state employer can be compliant in one state and in violation in another on identical facts.

This guide maps those differences, with the statute or state agency behind each figure.

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The Core Framework: What Workers' Comp Actually Does

Workers' comp is a no-fault trade: employees give up the right to sue their employer for negligence; employers get predictable, insured costs.

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Employee Thresholds, State by State

The single biggest variable is how many employees trigger mandatory coverage. The table below lists the states we have checked against the statute or the state's workers' compensation agency; each row names its source.

States not listed haven't been re-verified for this table yet. Don't assume a state requires coverage only at one employee, or only at five — check with that state's workers' compensation agency.

What a 5-employee threshold means in practice: a landscaping company with 4 employees is exempt from mandatory coverage in Alabama, Mississippi, Missouri and Tennessee. If a worker is injured, the employer faces a civil lawsuit, with no insurer backing the defense. The same company doing construction work in Missouri or Tennessee would need coverage from its first employee.

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Texas: The Only State Without a Mandate

Texas is the only state that lets private employers opt out of workers' compensation entirely. Texas Labor Code § 406.002 says an employer "may elect" to obtain coverage.

Employers who don't carry it are called non-subscribers. They must notify the Texas Division of Workers' Compensation that they have elected not to carry coverage (§ 406.004), and they give up key defenses if an employee sues. Under § 406.033, a non-subscriber can't argue that:

• the employee was contributorily negligent
• the employee assumed the risk of injury
• the injury was caused by a fellow employee's negligence

The injured employee still has to prove the employer was negligent, but without those defenses the employer's position is much weaker.

The Texas Department of Insurance estimated that 24% of Texas employers were non-subscribers in 2024, employing 13% of the state's workers.

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State-Monopoly Workers' Comp Funds

In most states, employers buy workers' comp from private insurers. Four states run exclusive state funds: North Dakota's Workforce Safety & Insurance describes itself as "one of four exclusive state funds in the country (the other three are Ohio, Washington, and Wyoming)."

In these states there is no private market for standard workers' comp. Some other states also run a state fund that competes with private insurers, which can be an option when private coverage is hard to find.

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Industry-Specific Variations

Construction: Stricter in Many States

Several states that set a higher general threshold require construction employers to insure from the first employee:

Not every state does this. Georgia, North Carolina and Virginia apply their three-employee thresholds to construction employers too.

If you subcontract work to an uninsured subcontractor, many states make the contractor above it responsible for that subcontractor's workers' comp. That is why general contractors ask every sub for a certificate of insurance.

Agriculture

Farm work is among the most frequently excluded:

Household (Domestic) Workers

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Self-Employed, Sole Proprietors, and Contractors

Sole Proprietors

Most states don't require sole proprietors with no employees to cover themselves. However:

• General contractors who hire sole-proprietor subs may require them to carry coverage or file an exemption
• Some states treat construction sole proprietors differently — check your state

LLC Members and Corporate Officers

Many states let corporate officers or LLC members exclude themselves from coverage by filing a form, and the rules differ widely. Note that in Georgia, officers and members still count toward the three-employee threshold even if they exclude themselves.

Independent Contractors

Whether a worker is an independent contractor or an employee is decided by state law, not by the label in a contract. California's ABC test (from AB 5) presumes workers are employees unless the hiring business proves otherwise. Misclassifying employees as contractors to avoid workers' comp exposes the business to back premiums, penalties and uninsured-claim liability.

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Penalties for Non-Compliance

Beyond fines, an uninsured employer in a mandatory state is directly responsible for the cost of any workplace injury during the uninsured period — medical bills, lost wages, disability and legal defense.

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Frequently Asked Questions

Does workers' comp cover part-time employees?

In most states, yes — and part-time employees usually count toward the threshold. New York, Illinois, Pennsylvania and Colorado say so explicitly, and Georgia counts regular part-time workers toward its three-employee rule.

If I'm a contractor working alone, do I need workers' comp for myself?

Typically no — sole proprietors without employees are generally not required to cover themselves. But the general contractor hiring you may require coverage or a filed exemption, and in states like Florida, Missouri, New Mexico and Tennessee, hiring even one helper for construction work triggers the mandate.

Can workers' comp cover injuries outside the workplace?

Yes, if the injury occurred while performing work duties. A delivery driver injured in a crash during a route is generally covered. The test is whether the injury arose out of and in the course of employment, not where it happened.

What is an experience modification rate and how does it affect premium?

The experience modification rate (EMR or "mod") compares your claims history to similar businesses. An EMR below 1.0 means better-than-average history and lower premiums; above 1.0 means higher premiums. A 0.8 mod reduces the premium it applies to by 20%; a 1.5 mod increases it by 50%.

Does workers' comp cover mental health injuries?

It depends on the state. Many states cover psychological injuries that result from a physical injury, and rules for stress-only claims vary widely.

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Key Takeaways

• Thresholds run from 1 to 5 employees. Many states require coverage at the first employee; Georgia, Michigan, North Carolina, New Mexico, Virginia and Wisconsin start at 3, South Carolina and Florida at 4, and Alabama, Mississippi, Missouri and Tennessee at 5
• Construction is often stricter — Florida, Missouri, Tennessee and New Mexico require it from the first employee — but not everywhere: Georgia, North Carolina and Virginia keep their 3-employee rule
• Texas is the only state where private employers can opt out; non-subscribers lose key defenses in employee lawsuits
• Ohio, North Dakota, Washington and Wyoming run exclusive state funds — no private market
• Farm and household workers are excluded or covered only above set thresholds in many states
• Penalties include stop-work orders, fines that can reach twice the unpaid premium, and criminal charges — plus direct liability for every uninsured injury

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Important Disclaimer

This guide provides general information about workers' compensation requirements based on publicly available sources. State laws change, and industry-specific and employer-size exemptions are complex. This is not legal advice.

Always verify current requirements with your state's workers' compensation division or department of labor before making coverage decisions.

Last verified: April 2026

Sources: State statutes cited in each table row; Alabama Department of Workforce; Colorado Division of Workers' Compensation; Georgia State Board of Workers' Compensation; Illinois Workers' Compensation Commission; Michigan Workers' Disability Compensation Agency; New Jersey Department of Labor; New York Workers' Compensation Board; North Carolina Industrial Commission; Oregon Workers' Compensation Division; Pennsylvania Department of Labor & Industry; Washington Department of Labor & Industries; Wisconsin Department of Workforce Development; North Dakota Workforce Safety & Insurance; Texas Department of Insurance