Workers' Compensation Requirements by State

The default rule: your first employee triggers it

In the large majority of states, workers' compensation insurance becomes legally required the moment you hire your very first employee, regardless of how low-risk the work is. Most states also apply narrower carve-outs on top of that default rule, commonly for sole proprietors with no employees, certain agricultural work, and domestic workers, but exactly how those carve-outs are defined varies enough from state to state that no single number responsibly describes all of them, so treat "check your own state's specific carve-outs" as a real step, not boilerplate advice.

Texas: the one true exception

Texas stands alone as the only state where private employers can legally choose not to carry workers' compensation insurance at all, a status Texas calls being a "non-subscriber."

An estimated 30% to 40% of Texas employers opt out, though non-subscribers skew toward smaller companies, so they employ a meaningfully smaller share of the state's total workforce than that employer-count percentage implies on its own.

The tradeoff is real in both directions, not a free pass. A subscriber employer's workers' comp policy pays no-fault benefits to an injured employee regardless of who was at fault, and in exchange the employer is generally shielded from being sued over the injury.

A non-subscriber employer skips the premium entirely, but also loses that lawsuit protection: an injured employee at a non-subscriber company can sue the employer directly in civil court, often for damages that can exceed what a standard workers' comp claim would have paid. Opting out is a genuine risk-shifting decision, not simply a way to save money.

A handful of states set the bar above one employee

Outside of Texas, every other state does require coverage, but a small number do not trigger the mandate until a business crosses a specific employee-count threshold above one:

• 3 or more employees: Georgia, North Carolina, Arkansas
• 4 or more employees: South Carolina
• 5 or more employees: Alabama, Mississippi, Missouri, Tennessee (general business; construction requires just 1)

Every state not listed above, which is most of them, applies the general rule: coverage required starting with the first employee. Legislative sessions can and do adjust these thresholds, so confirm your own state's current number directly rather than assuming this list is permanent.

An exemption from the mandate is not an exemption from risk

It is worth being precise about what a higher employee-count threshold, or Texas's opt-out entirely, actually changes. It removes the legal requirement to carry coverage. It does not remove your exposure if an employee is genuinely hurt on the job.

Below your state's threshold, or as a Texas non-subscriber, an injured employee can typically still pursue a claim against you directly, without the no-fault, capped structure workers' comp provides.

Plenty of small businesses under their state's threshold choose to carry coverage anyway specifically to convert that open-ended lawsuit exposure into a predictable, capped cost.

None of this changes what coverage costs once you decide to carry it, or are required to. That is set by your industry classification, which varies far more than state does, and by a broader state cost tier (Lower-cost state (e.g. TX, IN, ND, AR, VA, UT), Average-cost state, Higher-cost state (e.g. CA, NY, AK, HI, MT, NJ)), see workers' comp cost by industry for the full breakdown of what actually drives the price.