What You Risk With No Workers’ Comp Insurance

If someone who works for you gets hurt on the job, you could be responsible for damages and medical expenses—not to mention the cost of missed work. And this could be just the tip of the liability iceberg. 

As a business owner, taking care of your employees is one of the most important things you can do to keep your business running smoothly. Besides offering health benefits and competitive wages, one major way you can do that is by purchasing proper workers’ compensation—or workers’ comp—insurance. Workers’ comp is also essential to protecting yourself and your business from liability. Going without puts you at risk for steep fines, bankruptcy, and even jail time. 

Depending on where you conduct business, you may not be legally required to buy workers’ comp insurance. Texas, for example, doesn’t require it but does require businesses to file a notice of noncoverage annually. In circumstances like these, it may be tempting to discard the extra costs associated with workers’ comp insurance in favor of the bottom line. However, you will still be liable in the event that an employee is injured on the job, even if you weren’t legally required to carry coverage.

Lawsuits and damages as a result of employee injury on the job can bankrupt an employer, but this kind of outcome is easily avoidable if you prepare now with the right insurance. We’ll define workers’ comp coverage a little more here, including who exactly constitutes an employee, and why it’s so important to have the proper paperwork filled out and understood by everyone involved.

What is Workers’ Comp Insurance?

Workers’ comp insurance protects business owners and their employees from the financial losses that could result after an employee gets hurt on the job or gets sick from a work-related cause. It helps pay the medical costs resulting from an injury or illness and can indemnify the business owner against a lawsuit by the employee. 

So, Who Qualifies as an Employee?

Before assessing the risks incurred with forgoing workers’ comp insurance, it’s important to note that those risks can vary—depending, in part, on the nature of the business’ contractual relationship with those who work for them. In broad terms, a person working for a business can be an employee or an independent contractor.


An “employee” is defined by the IRS as someone who receives a specific wage or salary from your business (as opposed to project-based pay), has an employment contract (implied or written), and whose actions can be dictated by the company. The employer has financial and behavioral control over the employee’s job performance, as well as a working relationship formalized through a contract. If someone you’ve hired meets these requirements, even if you’ve hired them as an independent contractor or subcontractor, they may be considered an official employee of your company. 

Most states require that an employer carry workers’ comp insurance to cover its employees.  In addition, many employees expect their employer to carry workers’ comp insurance to protect them in the event of a work-related injury or illness.


Independent contractors are not considered employees, as they do not meet the criteria for an employee listed above. They’re hired for a specific project and for a specific result, but the person hiring doesn’t have control over what the contractor does or how they do it; they’re just paying for the result. In terms of liability, contractors are generally separated into two tiers:

  • Tier 1, or “Upper Tier,” consists of the business owner and the person the business owner hires as a contractor. That person is the “general contractor.”
  • Tier 2, or “Lower Tier,” consists of anyone the general contractor hires—called “subcontractors”—and anyone those subcontractors hire to help with their own work.

Because an independent contractor is not an employee, there may be no requirement to cover them with workers’ comp insurance.  In fact, may policies exclude independent contractors. However, a business needs to consider its potential liability when engaging an independent contractor. 

What Do You Risk by Not Having Workers’ Comp Insurance?

Contractor liability

Since contractors aren’t employees, they often end up assuming liability for themselves and any injuries they may sustain while working for you. If this isn’t clearly laid out in an express contract, though, you could be held responsible for a contractor’s injuries—or a subcontractor’s injuries, or a sub-subcontractor’s injuries—down the line.

Contractors and their subs need to be aware of this going in—they must assume the risks themselves. Anyone they hire also needs to assume the risks of their work. That transfer of risk onto the contractor is made possible by an express contract, which spells out the fact that they are taking liability from you onto themselves. This process is known as contractual risk transfer. It prevents any injuries sustained on the job from becoming your liability. 

Workers’ comp for volunteers can be tricky as well. Unpaid volunteers or interns are not usually covered by general liability insurance or standard workers’ comp insurance, but your company may still be held responsible if a volunteer is injured on the job.

Unlike paid employees, volunteers also retain the right to sue the company if they become injured or sick. Especially in high-risk industries like hospitals, animal shelters, and farms, you may want to consider purchasing additional insurance policies before bringing any volunteers on board.

Lawsuits, Fines, and Jail Time

The price for having no workers’ comp insurance can be steep. An employee can sue, making the employer liable for damages like the cost of medical treatment and missed income from the time the employee spent injured.

Though some states don’t require employers to carry coverage, almost all of them do. The threshold of coverage will vary from state to state, so be sure to know how much coverage you’re required to purchase. Review the workers’ comp laws for your state thoroughly and regularly to make sure you’re in compliance. Most states require coverage from the first employee on, while some don’t require an employer to get workers’ comp until it has at least five employees. 

An employer can be fined for not having workers’ comp insurance, and even serve jail time. In New Jersey, for example, failure to carry workers’ comp coverage is a criminal offense punishable by a $10,000 fine or up to 18 months of imprisonment. In California, fines can be as high as $100,000. 

Intentional failure to comply with workers’ comp requirements can even be considered a felony in some states. In Pennsylvania, for example, it’s a third-degree felony. Willfully failing to maintain workers’ comp coverage is also a felony in Illinois.

Depending on the amount of money fined for failure to carry workers’ comp insurance or paid in damages on top of jail time served, an owner could end up closing their business over penalties resulting from their lack of worker’s comp coverage. That’s why it’s so important not only for an employer to be covered but to understand the risks that they and their employees are taking on by entering into a partnership. 

As a business owner, you need to look out for your employees. To do that, you have to know who they are. Not everyone working for or with you is the same type of employee, and that can change your liability.

Get Covered Today

Knowing you need insurance isn’t the same as having it, and finding the right policy for you can be a tough process. Navigating the changing landscape of the insurance world, matching your current policy with risk at your company, and finding new policies can be a headache. That’s why RMC offers risk review services where we outline your risk areas and help you find the coverage that best fits your needs. If you’ve got gaps in your coverage, we’ll help you find them and cover them. Read our blog to find out more about how the risk review process works and set up an appointment to speak with a representative today.