Workers' Compensation Insurance in 2026: State Requirements, Class Codes, Rates and Penalties

Workers' compensation insurance pays an injured employee's medical bills and part of their lost wages, and in exchange generally stops them from suing you over the injury. It's the one business insurance policy that almost every state makes compulsory once you have employees. This guide is for owners hiring their first staff or checking an existing policy. It covers which states require coverage at what headcount, how Texas's opt-out and the four state-fund-only states work, how class codes and rates per $100 of payroll set your premium, a worked premium using official 2026 rates, and what states do to businesses that go without.

Quick answer

Most states require workers' comp from your first employee. A few start later, such as Georgia and North Carolina at 3 or more employees, Florida at 4 or more employees outside construction and Tennessee at 5 or more employees outside construction, and Texas lets most private employers opt out. You pay a rate per $100 of payroll for each job class: Idaho's 2026 rates run from $0.117 for office staff to $11.30 for roofers.

• Construction firms are usually covered from the first worker, even in threshold states

• North Dakota, Ohio, Washington and Wyoming: buy from the state fund only

• Premium = class rate × (payroll ÷ 100) × experience mod, then audited after the year

• Going uninsured can bring stop-work orders, penalties of twice the premium and personal liability for claims

What workers' comp covers and who pays

A workers' compensation policy has two parts. Part One, workers' compensation, pays the benefits your state law sets for work-related injuries and illnesses: medical treatment with no deductible for the employee, a share of lost wages while they can't work, rehabilitation, permanent disability awards and death benefits for dependants. It applies whether or not anyone was at fault. Part Two, employer's liability, covers lawsuits that fall outside the workers' comp system, such as a claim by an employee's spouse or a third party who was sued by the employee and turns to you.

The deal at the heart of the system is the "exclusive remedy": the employee gets guaranteed benefits without proving negligence, and in return generally can't sue the employer for the injury. That's why Texas, the only state where most private employers can opt out, warns that without coverage you lose the liability limit coverage provides.

Benefits are paid by the employer through the premium. In nearly every state the employer pays the whole cost and can't deduct it from wages. Washington is the main exception: its state fund charges premiums by the hour worked, and workers pay roughly a quarter of the total through payroll deduction.

Workers' comp doesn't cover the business owner by default in many structures. Sole proprietors and partners are usually excluded from the headcount and can choose to cover themselves. Corporate officers and LLC members are often counted as employees but may be allowed to exclude themselves; Georgia and North Carolina both count officers toward the threshold even when they opt out of coverage.

Workers' comp requirements by state

States set their own rules, and the headcount threshold is the first thing to check. Part-time, seasonal and family employees generally count toward the total; Tennessee, for instance, includes minors, working family members and part-timers, and Georgia counts anyone who works for you regularly, even on weekends.

The table shows examples; a few other states also use small-employer thresholds, and many exclude farm labor, domestic workers or casual labor. Check your state agency's employer page, and remember the rule follows where the employee works, so a remote employee in another state may need coverage under that state's law.

Texas: the opt-out state

Texas is the only state where most private employers can legally choose not to carry workers' comp. Employers that go without are called non-subscribers. Opting out is not the same as doing nothing: non-subscribers with non-exempt employees must file DWC Form-005 with the Texas Department of Insurance each year between February 1 and April 30, tell new hires in writing that the business doesn't carry coverage, and post the state's notice where employees can see it. Non-subscribers may also have to report certain work injuries to the state.

The trade-off is legal exposure. Without coverage, an injured employee can sue you for negligence, and damages aren't capped the way workers' comp benefits are. Many Texas non-subscribers buy an occupational accident or "non-subscriber" liability policy instead, and many general contractors and public bodies require subcontractors to carry workers' comp anyway, so opting out can cost you work.

Monopolistic states: buy from the state fund

In North Dakota, Ohio, Washington and Wyoming, private insurers can't sell workers' comp. You register with and buy from the state agency: Workforce Safety & Insurance in North Dakota, the Bureau of Workers' Compensation in Ohio, the Department of Labor & Industries in Washington and the Department of Workforce Services in Wyoming. Larger employers may be able to self-insure in some of these states.

Two practical points follow. First, state-fund policies cover workers' comp benefits but not employer's liability, so businesses there typically add stop-gap coverage, usually as an endorsement to a general liability policy. Second, if you have employees in a monopolistic state and others elsewhere, your private carrier can't cover the monopolistic-state workers; you need a separate state-fund account.

Many other states run a competitive state fund alongside private insurers, and every state has an assigned-risk pool or residual market for businesses that private carriers decline, usually at higher prices.

How premiums are calculated: class codes and rates per $100

Workers' comp premiums start from your payroll, split by the kind of work each employee does. Each type of work has a class code. Most states use the codes and loss data of NCCI, the National Council on Compensation Insurance; California, New York, New Jersey, Pennsylvania, the monopolistic states and a few others run their own rating bureaus or systems. Each class carries a rate per $100 of payroll that reflects how often and how badly people in that work get hurt.

The basic formula is:

Premium = (payroll ÷ 100) × class rate × experience modification factor, then adjusted by premium discounts, schedule credits, minimum premiums, expense constants and state assessments.

To show how much the class matters, here are official 2026 rates from one state. Idaho's Industrial Commission publishes the NCCI rates per $100 of payroll that apply from January 1, 2026; your state's numbers will differ, sometimes a lot, but the pattern between classes is similar everywhere.

Workers' comp rates by class — Idaho, effective January 1, 2026 (per $100 of payroll)

Class code	Work	Rate	Premium on $40,000 payroll
8810	Clerical office employees	$0.117	$47
8742	Outside salespeople	$0.22	$88
9586	Barber shop / beauty salon	$0.43	$170
8017	Retail store	$1.02	$410
9082	Restaurant	$1.20	$478
5190	Electrical wiring in buildings	$1.92	$768
5183	Plumbing	$2.39	$955
0042	Landscape gardening	$4.22	$1,686
7219	Trucking	$5.30	$2,119
5645	Residential carpentry	$8.15	$3,261
5551	Roofing	$11.30	$4,521

8810

Work

Clerical office employees

Rate

$0.117

Premium on $40,000 payroll

$47

8742

Work

Outside salespeople

Rate

$0.22

Premium on $40,000 payroll

$88

9586

Work

Barber shop / beauty salon

Rate

$0.43

Premium on $40,000 payroll

$170

8017

Work

Retail store

Rate

$1.02

Premium on $40,000 payroll

$410

9082

Work

Restaurant

Rate

$1.20

Premium on $40,000 payroll

$478

5190

Work

Electrical wiring in buildings

Rate

$1.92

Premium on $40,000 payroll

$768

5183

Work

Plumbing

Rate

$2.39

Premium on $40,000 payroll

$955

0042

Work

Landscape gardening

Rate

$4.22

Premium on $40,000 payroll

$1,686

7219

Work

Trucking

Rate

$5.30

Premium on $40,000 payroll

$2,119

5645

Work

Residential carpentry

Rate

$8.15

Premium on $40,000 payroll

$3,261

5551

Work

Roofing

Rate

$11.30

Premium on $40,000 payroll

$4,521

These are Idaho's published rates before experience rating, discounts and state taxes, so treat the dollar column as an illustration of scale rather than a quote. For a sense of how states compare, California's Insurance Commissioner set an average advisory benchmark of $1.65 per $100 of payroll effective September 1, 2026; that's a pure-premium average across all classes, to which insurers add their own expenses. Oregon's biennial comparison of all states, using rates as of January 1, 2024, put the national median at $1.09 per $100 of payroll, with Hawaii, New Jersey, New York and California the most expensive and North Dakota the cheapest.

For a broad market estimate: Insureon, an online broker, reports a median workers' comp premium of about $54 a month ($643 a year) across policies sold to its customers, most of whom have fewer than five employees. That figure is skewed toward low-risk, low-payroll businesses, so it's a floor for comparison, not a budget.

Experience mod and premium audit

Once your business has enough premium history, usually after about three years, the rating bureau calculates an experience modification rate (EMR or "mod"). It compares your actual claims with what's expected for businesses of your size and classes. A mod of 1.00 is average; 0.85 cuts your premium 15%; 1.30 raises it 30%. Small, frequent claims tend to raise a mod more than one large claim, which is why reporting injuries promptly and getting people back to light duty matters.

Your premium is first charged on estimated payroll. After the policy year ends, the insurer audits your actual payroll and job classes and sends a bill or refund. Common audit surprises are payroll growth, an office worker being classed as field staff, overtime (many states let you exclude the overtime premium portion if your records show it), and uninsured subcontractors, whose payments the auditor adds to your payroll. Pay-as-you-go programs, where premium is calculated with each payroll run, reduce the year-end shock.

A worked premium for a small landscaping company

A landscaping business in Idaho has two crew members earning $45,000 each and an office manager earning $40,000. Using the 2026 rates above:

Two lessons come out of this. First, getting the office manager into class 8810 matters: if the insurer lumped her into the landscaping class, her premium would be $1,686 instead of $46.80. Clerical work is generally separately classified only if the employee works in a clerical area physically separated from field operations, so keep job descriptions and duties clear. Second, the experience mod swings this small policy by more than $1,300 a year, which is real money for a three-person business. Our landscaping business guide has the other start-up costs.

Contractors, subcontractors and remote employees

Genuine independent contractors don't need to be on your policy, but the label on the contract doesn't decide that. States apply their own tests, and some of them are stricter than the IRS test; California's ABC test is the best-known example. If a "contractor" is really an employee under your state's rules, an injury turns into an uninsured claim against you. Our 1099 vs W-2 guide explains how the tests work.

Subcontractors raise a second risk. In many states, a general contractor becomes responsible for the injured workers of an uninsured subcontractor, and insurers price that risk at audit: if you can't produce a certificate of insurance for a sub you paid, the auditor will usually add the payments to your payroll in the sub's class. Collect a certificate before the first job and again at each renewal, and check that the policy dates cover the work.

Remote and travelling staff follow the law of the state where they work. If you hire someone who works from home in another state, tell your insurer so the policy lists that state, or buy a separate policy if the employee is in a monopolistic state. Coverage for short business trips is usually handled by the policy's other-states provision, but permanent remote employees need to be listed.

Penalties for not carrying workers' comp

States enforce workers' comp aggressively, usually through data matching with unemployment tax records, job-site inspections in construction and claims from injured employees. The consequences stack up:

• Florida can issue a stop-work order that shuts down all operations until you get coverage and pay a penalty of 2 times the premium you would have paid over the preceding 12 months (24 months for repeat offenders or concealed payroll), with a minimum of $1,000. Working in violation of the order adds $1,000 a day.
• California issues a stop order and a penalty assessment of $1,500 per employee; if you were uninsured for more than a week in the prior year, it's the greater of twice the premium or $1,500 per employee. Being uninsured is also a misdemeanor.
• New York can impose up to $2,000 for each 10-day period without coverage, capped at twice the cost of compensation for the period. Failing to cover five or fewer employees is a misdemeanor with fines of $1,000 to $5,000; more than five is a felony with fines up to $50,000. Corporate officers can be held personally liable.

On top of state penalties, an uninsured employer usually has to pay the injured worker's benefits directly, often through the state's uninsured employers fund, which then pursues the business and its owners for reimbursement. A single serious injury can cost more than the business is worth.

Before you buy or renew workers' comp

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• Check your state's headcount threshold and whether construction rules apply
• List each employee's duties and confirm the right class code for each
• Estimate payroll by class honestly; underestimating only moves the bill to the audit
• Collect certificates of insurance from every subcontractor
• In ND, OH, WA or WY, open a state-fund account and add stop-gap coverage
• Decide whether owners or officers should be included or excluded
• Post the required workers' comp notice and tell employees how to report injuries
• Ask about pay-as-you-go billing and safety-program credits

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How to buy workers' comp and keep the cost down

Small businesses buy workers' comp from a licensed insurance agent or broker, directly from an insurer, through a payroll company's pay-as-you-go program, or from the state fund in monopolistic states. If no insurer will write you, perhaps because you're new in a high-risk class, the state's assigned-risk pool will, usually at a higher price; shop again once you have a year or two of history.

Ways to lower the premium without cutting coverage:

Classify correctly. Ask the agent to show you the class codes on the quote and check each one against what employees actually do. If someone splits time between classes, many states require records showing the split before you can use the lower rate.

Keep payroll records the auditor can use. Separate overtime premium pay, clerical staff and subcontractor payments in your books.

Manage claims early. Report injuries the same day, use the insurer's nurse line or approved clinics where your state allows it, and offer modified duty so a minor injury doesn't become a lost-time claim. Those habits drive the experience mod.

Run a written safety program. Some states and insurers give credits for certified safety programs, drug-free workplace programs or return-to-work policies.

Bundle carefully. Many carriers sell workers' comp alongside a business owner's policy, which can bring a package discount. Compare the bundle with standalone quotes, because a cheap package with the wrong class code is no saving.

Official links

• Texas DWC — Employer information and non-subscriber filingOpt-out rules and DWC Form-005
• Florida — § 440.02 and § 440.107, Florida StatutesCoverage thresholds and penalties
• Georgia SBWC — Workers' comp insurance FAQsThree-employee rule
• North Carolina Industrial Commission — Coverage requirementThree-employee rule
• Tennessee BWC — Who must carry insuranceFive-employee rule
• New York WCB — Violations of the WC LawPenalties
• Idaho Industrial Commission — 2026 ratesRates per $100 of payroll by class
• Washington L&I — Workers' comp ratesHourly rates and annual changes

What to do next

Look up your state's rule on its workers' comp agency site, list your employees by job class, and get at least two quotes with the class codes shown. If you're about to make your first hire, our how to hire your first employee checklist puts workers' comp in order with registration and payroll, and the small business insurance guide covers the general liability, property and auto policies you'll want alongside it. Fold the premium into your pricing with the hourly rate calculator.

This is general information, not legal or insurance advice — confirm on the official source or with a licensed professional.

Frequently asked questions

Is workers' compensation insurance required for small businesses?

In most states, yes, from the first employee. Some states start at a higher headcount: Georgia and North Carolina at 3 or more employees, Florida at 4 or more employees outside construction and Tennessee at 5 or more employees outside construction, with construction firms usually covered from one worker. Texas lets most private employers opt out. Sole proprietors and partners with no employees generally aren't required to cover themselves.

How much does workers' comp cost?

Premiums are a rate per $100 of payroll set by job class, adjusted by your claims record. Idaho's 2026 rates run from $0.117 per $100 for clerical office work to $11.30 for roofing, and California's average benchmark is $1.65 per $100 of payroll. Insureon reports a median of $54 a month among its mostly very small customers, but your class and state matter far more than any average.

What are the monopolistic workers' comp states?

North Dakota, Ohio, Washington and Wyoming require employers to buy workers' compensation from the state fund rather than a private insurer (large employers can self-insure in some of them). Those state policies don't include employer's liability coverage, so businesses there usually add a stop-gap endorsement to their general liability policy.

What happens if I don't carry workers' comp when it's required?

Penalties are steep. Florida can issue a stop-work order and assess twice the premium you should have paid over the prior 12 months (minimum $1,000), plus $1,000 a day for each day you keep working. California assesses $1,500 per employee when it issues a stop order. New York can fine up to $2,000 per 10 days without coverage. You also pay injured workers' benefits yourself.

Do I need workers' comp for independent contractors?

Not for genuine independent contractors. But if a contractor is really an employee under your state's test, you need to cover them, and many states make a general contractor liable for an uninsured subcontractor's workers. Always collect a certificate of insurance from subcontractors, or your auditor will add their pay to your payroll and charge you premium on it.

What is a workers' comp class code?

A class code is a four-digit number that groups jobs with similar injury risk, such as 8810 for clerical office employees or 5645 for residential carpentry. Most states use codes from NCCI; California, New York and a few others run their own systems. Each code carries its own rate per $100 of payroll, so putting an employee in the right class directly changes your premium.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 9 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Idaho Workers Compensation Rates effective January 1, 2026 (NCCI rates per $100 of payroll) — Idaho Industrial Commission · accessed 9 October 2026
2. 2.Decision and Order — Workers' Compensation Claims Cost Benchmark and Advisory Pure Premium Rates (REG-2026-00002), July 10, 2026 — California Department of Insurance · accessed 9 October 2026
3. 3.Workers' compensation — employer information — Texas Department of Insurance, Division of Workers' Compensation · accessed 9 October 2026
4. 4.DWC Form-005, Non-Subscriber Notice to Division of Workers' Compensation — Texas Department of Insurance · accessed 9 October 2026
5. 5.Florida Statutes § 440.02 (definitions of employment) — Florida Legislature · accessed 9 October 2026
6. 6.Florida Statutes § 440.107 (compliance, stop-work orders, penalties) — Florida Legislature · accessed 9 October 2026
7. 7.Workers' Compensation Insurance FAQs — Georgia State Board of Workers' Compensation · accessed 9 October 2026
8. 8.Employers' Obligation to Obtain and Maintain Workers' Compensation Coverage — North Carolina Industrial Commission · accessed 9 October 2026
9. 9.Who must carry insurance — non-construction — Tennessee Bureau of Workers' Compensation · accessed 9 October 2026
10. 10.Violations of the Workers' Compensation Law — New York State Workers' Compensation Board · accessed 9 October 2026
11. 11.California Labor Code §§ 3700 and 3722 — California Labor Code (via public.law) · accessed 9 October 2026
12. 12.Rates notice — proposed 2027 workers' compensation rates — Washington State Department of Labor & Industries · accessed 9 October 2026
13. 13.Workers' compensation premium rate ranking (as of January 1, 2024) — Oregon Department of Consumer and Business Services · accessed 9 October 2026
14. 14.Oregon releases biennial workers' compensation premium rate study — Oregon Department of Consumer and Business Services · accessed 9 October 2026
15. 15.How much does workers' compensation insurance cost? — Insureon · accessed 9 October 2026