Does My Business Need Workers Compensation Insurance?

By Brent Kelly

If you are small business owner that is looking at hiring your first employee, have a family member who works for your business, or you are using a subcontractor, you may have asked this question, “Does my business need workers compensation?”

So you started your business out of your home and now you need some part-time help.  Do you need workers compensation insurance?  

Your family member is helping you on the weekends and you are paying them for their help. Do you need workers compensation insurance?

You hired a one-man subcontractor who does not have workers compensation insurance on himself.  Do you need workers compensation insurance?  

The short answer in almost all of these cases is YES.  That answer; however, is a little too simple.

The first idea you need to understand is that workers compensation laws vary by state.  If you live in New York, the workers compensation laws may be much different than what they are where I live in Illinois.  You need to check with your state’s workers compensation department to understand the specific laws for your state.  Also, like many things in insurance, rules can change quickly so what may be true today could change tomorrow.  To find your state, click here (

Most states require that workers compensation insurance is purchased if you have any paid employee.  This post is going to be directed to those who live in the state of Illinois so again please check with your state for specific answers.

 What are the requirements necessary to obtain workers compensation in Illinois?
1) According to the Illinois workers compensation commission, if you have one employee (even a part-time employee), you are required to carry workers compensation.

2) Even if your employees are relatives, you are still required to carry workers compensation unless they are corporate officers or can be excluded through agriculture exemptions.

3) Sole proprietors, corporate officers, limited liability company members can elect to be excluded from workers compensation.

What if I have subcontractors?  Do I need to obtain workers compensation for them?
Although you are not required to carry workers compensation insurance for your subcontractors, many insurance company will audit your subcontractors much like an employee if the proper steps are not taken.

  • In  the state of Illinois, make sure all subcontractors provide both proof of general liability & workers compensation.  It doesn’t matter if the subcontractors are a corporation or a sole proprietor, insurance companies can and will look at your subcontractors costs as payroll if you do not require them to carry workers compensation.  Although this is not necessarily fair, it will protect your business from large and unexpected expenses.

Workers Compensation is complex and important.  It’s vital that you understand your states rules and regulations.  Talk to an experienced insurance agent who can help you.

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