Taking the next step in a business is exciting and invigorating, but it can also be daunting when it comes to workers’ compensation for expanding businesses. As employees are hired, new locations of operations open, or business categories change, make sure your business stays compliant and manages the risks with these helpful tips.

Workers’ Compensation for Expanding Businesses: Sole Proprietorship to Hiring Employees

If you have a sole proprietorship or partnership with no employees, you’re in good company. According to the latest Census data, 76.2 percent of U.S. businesses have no paid employees. That said, many small businesses eventually need to hire employees.

Here’s what to know about workers’ compensation when you hire your first employees:

  • Workers’ compensation coverage is required by law for any non-owner or non-partner employees in almost every state.
  • Employees must be covered by workers’ compensation whether they are salaried or hourly, exempt or non-exempt, or part-time or full-time workers.
  • Family members who are paid by a business count as employees and need to have coverage.
  • Corporate executive officers and directors may need to be covered by workers’ compensation, in some cases.
  • Commission-only workers are required to be covered under some state laws.
  • Contractors and subcontractors and their employees may need coverage in some states.
  • Owners and partners are not required to have workers’ compensation coverage for themselves, but still have the option to cover themselves, if desired.

Workers’ Compensation for Expanding Businesses: Across State Lines

Expanding business operations into multiple new locations is common and more than one in 10 businesses is a franchise according to Census data. Yet for businesses expanding across state lines, workers’ compensation requirements take on a new level of complexity.

Since workers’ compensation programs are managed at the state level, each state has its own requirements for benefits, coverage areas, coverage type and more. Businesses are required to have adequate insurance for all employees wherever you operate and to the extent each state’s guidelines requires.

Different state systems exist for coverage, including:

  • Monopolistic state fund states
  • Competitive state-run fund states
  • Private insurance states
  • Self-insure states
  • Opt-in coverage states
  • States with a monopolistic state fund for workers’ compensation must obtain coverage from the state fund.
  • States with competitive state-run funds have a hybrid system, where the required coverage is available from the state or from a private insurer.
  • Other states require workers’ compensation coverage from a private insurer.
  • Businesses that meet certain qualifications may self-insure in some states.
  • Texas is now the only state that does not require workers’ compensation insurance coverage, but allows businesses to opt in.

With yearly review by state legislatures, state requirements change often. These changes can be dramatic. Only a few years ago, New Jersey was also an opt-in state and there were five states, not four, with a monopolistic state fund program.

Workers’ Compensation for Expanding Businesses: One Business Category to Another

Businesses expanding across state lines also need to know that neighboring states may have different definitions for business categories. This can affect whether and how much insurance is needed to be compliant for that jurisdiction. Requirements can vary for different industries, number of employees and business structure.


The Importance of Being Properly Insured

Workers’ compensation programs protect both workers and their employers. Coverage ensures employees and their families have a remedy for workplace injuries and that employers are not burdened with costly litigation in the event of an accident.

Yet proper coverage is also important beyond these benefits. If your business’s employees are not properly insured, you could face serious fines and even criminal charges for noncompliance in some states.

Business expansion can be an exciting time for your small business. Take the time to review your workers’ compensation coverage obligations before you hire a new employee or expand across state lines. Proper workers’ compensation coverage will minimize your risk and make sure you’re prepared for your business’s next big step.