Employers’ Liability Insurance vs. Workers’ Compensation

Understanding employers' liability insurance vs. workers' compensation tells you which covers employee benefits and protects your business against lawsuits.

Discover affordable workers’ comp insurance below.

By Mark Fitzpatrick

Edited by Rae Osborn

Updated: August 6, 2025

Advertising & Editorial Disclosure

Key Takeaways

Workers' compensation pays for employees' lost wages and medical expenses after workplace injuries, regardless of who was at fault.

Employers' liability insurance provides financial protection from employee lawsuits claiming negligence or unsafe conditions beyond standard workers' compensation coverage.

In most states, you'll need workers' comp when you hire employees, with employers' liability automatically included as Coverage B at no extra cost.

What’s Employers’ Liability Insurance vs Workers’ Compensation?

If you're wondering about the difference between employers' liability insurance vs workers' compensation and whether you need both, you're not alone. Both cover workplace injuries, but they work differently to give your business complete financial protection.

Workers' compensation insurance (workers' comp) covers your employees' medical bills when they're injured on the job, including any lost wages. Think of it as immediate financial protection, regardless of who's at fault.
Employers’ liability insurance protects you financially from lawsuits related to workplace injuries, like when an employee sues you for negligence or when a family member sues for loss of consortium (loss of companionship and support) after a workplace accident.

LEARN MORE ABOUT WORKERS’ COMP INSURANCE

Explore our comprehensive workers' compensation guides:

How Employers' Liability and Workers’ Compensation Insurance Work Together

Many business owners don't realize that employers' liability insurance is part of their workers' compensation policy, called Coverage B. When you purchase workers' comp, you get employee benefits (Coverage A) and the lawsuit protection (Coverage B).

Here's how they work differently:

Aspect	Workers’ Compensation	Employers’ Liability
Legal Requirement	Mandatory in most states	Often bundled with workers’ comp
Who It Protects	Employees first	Business owners from lawsuits
When It Activates	Immediately after a workplace injury	When employees sue or third parties file claims
Fault Requirement	No-fault system (you get benefits even if the accident was your fault)	Fault-based legal claims (you must prove someone was negligent)
Policy Structure	Standalone requirement	Usually Coverage B of workers’ comp policy
Premium Basis	Based on payroll and industry risk	Included in workers’ comp’ premium

BUSINESS EXAMPLE: WHY YOU NEED BOTH

Sarah owns a small construction company. When Jake, one of her employees, falls from scaffolding and breaks his leg, workers’ comp immediately covers his medical bills and partial wages.

Jake's wife decides to sue Sarah for negligence regarding safety training. This type of lawsuit goes beyond workers’ comp coverage, so employers’ liability insurance protects Sarah from legal costs.

Employers’ Liability Insurance vs. Workers’ Compensation: What They Cover

Understanding the differences between employers' liability insurance vs. workers' compensation coverage helps you make better decisions about your business's financial protection. While workers’ compensation and employers’ liability insurance often come bundled together, they cover different situations, as shown below.

Risk or Possible Claim	Workers' Comp	Employers' Liability	Business Example
Employee injured on job site	✓	✗	A restaurant cook burns his hand on the grill. Workers’ comp covers his medical bills and lost wages.
Employee sues for unsafe conditions	✗	✓	A construction worker sues a contractor for not providing proper fall protection equipment.
Family member sues for loss of consortium	✗	✓	An injured employee's spouse sues for loss of companionship after a workplace accident.
Employee contracts work-related illness	✓	✗	An office worker develops carpal tunnel. Workers’ comp covers treatment and rehabilitation.
Third-party lawsuit against employer	✗	✓	A customer injured by an employee's negligence sues the business owner for inadequate training.
Employee claims discrimination	✗	✗	Neither coverage applies. Requires Employment Practices Liability Insurance (EPLI).
Intentional employee misconduct injury	✗	✗	An employee intentionally harms a coworker. Both coverage exclude intentional acts.
Dual capacity lawsuit (when the employer serves in two roles)	✗	✓	Employee sues his employer, who owns the building where the injury occurred.

Employers’ Liability Insurance vs. Workers’ Compensation: How Much Do You Need?

The right coverage amounts for employers’ liability insurance vs. workers' compensation insurance depend on your business size, industry risk and state requirements. Each type works differently for your business. For example, workers' compensation coverage is state-mandated, while employers' liability limits are your choice.

Workers’ compensation has no dollar limits. Your state sets the benefits, including unlimited medical coverage and partial wage replacement as determined by state law. You can't choose lower amounts.
Employers’ liability insurance uses standard limits you can adjust: $100,000 per accident, $500,000 per policy period, and $100,000 per employee. Construction businesses usually need higher limits.

Industry-Specific Considerations

Construction and Manufacturing

Higher workers' comp premiums due to frequent on-site injuries
Maximum employers' liability limits recommended ($1 million+)
Umbrella coverage for comprehensive protection beyond standard limits

Professional Services

Lower workers' comp costs in safer office environments
Moderate employers' liability limits are adequate ($500,000)
Greater focus on professional liability insurance over higher EL limits

Retail and Hospitality

Moderate workers' comp premiums in retail and hospitality settings
Standard employers' liability limits are adequate for most operations
General liability insurance addresses customer slip-and-fall risks

Employers’ Liability Insurance vs. Workers’ Compensation: Which One Do You Need?

The answer is both. Employers' liability insurance vs. workers' compensation isn't an either-or decision since they are bundled in the same policy.

You must have workers' compensation insurance in most states if you have employees, though thresholds vary. For example, California requires workers' comp as soon as you hire your first employee, while in Georgia, you only need it when you have three or more people. Texas and South Dakota are the only states where workers' comp isn't required for most private employers.

Workers' compensation requirements vary by state and change frequently. Verify requirements in your state through your state's workers' compensation board or a licensed insurance professional.

Employers’ Liability Insurance vs. Workers' Compensation: Bottom Line

Understanding employers' liability insurance vs. workers' compensation helps you protect your business. Workers' comp handles immediate employee medical costs and wages, while employers' liability covers costs when employees sue for negligence. Most workers' comp policies bundle both coverages, giving you complete protection against workplace injury.

Employers’ Liability Insurance vs. Workers’ Compensation: FAQ

We've answered the most frequently asked questions about employers' liability insurance and workers' compensation:

What’s employers' liability insurance?

Employers' liability insurance provides legal protection when employees sue your business for workplace injuries that go beyond what workers' compensation covers. It's automatically included as Coverage B in your workers' comp policy. It handles situations like negligence lawsuits, third-party claims and dual capacity cases, covering your legal defense costs and damages.

What’s workers' compensation insurance?

Workers' compensation insurance provides immediate medical coverage and partial wage replacement when your employees get injured on the job, regardless of who's at fault. This no-fault system covers medical bills, rehabilitation costs and lost wages to help injured employees return to work.

How much does workers' compensation insurance cost?

Workers' compensation insurance averages $36 monthly ($436 annually) for small businesses. However, rates may vary based on your business location, payroll and claims history. High-risk industries like construction and roofing pay more, while office-based businesses like accounting pay less. Contact licensed insurance professionals for personalized quotes.

What's the difference between employers' liability and workers' compensation coverage?

Workers' comp provides immediate employee benefits like medical bills and lost wages after workplace injuries, regardless of fault. Employers' liability protects you from employee lawsuits claiming negligence or unsafe conditions. It covers legal defense costs, settlements and court-awarded damages when employees sue beyond standard workers' comp claims.

Who needs employers' liability insurance?

Any business required to carry workers' compensation insurance automatically gets employers' liability coverage as Coverage B of that policy.

Standard employers’ liability limits are usually $100,000 per accident, $500,000 per policy period, and $100,000 per employee. Construction and high-risk industries often choose higher limits for additional protection against costly lawsuits.

What are common employers' liability insurance exclusions?

Employers' liability insurance excludes intentional harm by employers, punitive damages and discrimination or harassment claims unrelated to workplace injuries. The coverage focuses specifically on workplace injury-related lawsuits, not broader employment law violations.

How do I file an employer's liability insurance claim?

Contact your insurance provider immediately when you receive a lawsuit or legal notice about workplace injuries. Your insurer will assign a claims adjuster and legal counsel to handle your defense. Employees have one to five years to file claims, depending on their state's statute of limitations, and settlement negotiations take six to 18 months.

What's the difference between EPLI and employers' liability insurance?

Employment Practices Liability Insurance (EPLI) covers discrimination, harassment and wrongful termination claims, while employers' liability insurance covers lawsuits related to workplace injuries and illnesses.

EPLI handles hiring disputes, while employers' liability handles injury-related negligence claims. Most businesses benefit from having both coverages.

How can I find cheaper workers' compensation insurance premiums?

You can lower your workers' compensation premiums by bundling it with other types of business insurance, paying annually and maintaining a clean claims history.

Higher deductibles can reduce premiums, but make sure you can afford the out-of-pocket costs. Many insurers offer discounts for safety certifications, regular audits and return-to-work programs.

What industries need employers' liability insurance most?

Construction, manufacturing and health care industries face the highest employers' liability risks because they're more exposed to employee negligence lawsuits and third-party claims related to workplace injuries.

About Mark Fitzpatrick

Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.

Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!

Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.

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