Workers’ Compensation Insurance for Contractors

Workers' compensation insurance for contractors pays for employee work injuries, medical care and lost wages while protecting your business.

Discover affordable workers’ comp insurance for contractors below.

By Mark Fitzpatrick

Edited by Rae Osborn

Updated: July 15, 2025

Advertising & Editorial Disclosure

Key Takeaways

Workers' compensation insurance for contractors covers job injuries and lost wages but excludes commuting accidents and lunch break injuries.

In most states, you need contractor workers' comp when hiring employees, but it's optional for solo contractors except in certain trades.

Business insurance costs depend on state minimums, industry risk level and business size, with high-risk trades paying more than office work.

Does My Business Need Workers' Compensation Insurance for Contractors?

Whether you need workers' compensation insurance for contractors depends on your worker classification and state requirements. California requires employers, including construction companies, to carry workers' compensation insurance with even one employee, while Texas doesn't require most private employers to have workers' compensation.

Beyond state requirements, it also depends on whether people working for you are independent contractors or direct employees. This determines what you're legally required to do and how much it could cost you. Misclassifying workers can lead to penalties, back taxes and legal complications.

LEARN MORE ABOUT WORKERS’ COMP INSURANCE

If you’re looking for workers' compensation insurance for contractors, these guides help you compare costs and find the best coverage:

Independent Contractor vs. Employee

The difference between independent contractors and employees determines your workers' compensation requirements. The IRS uses three main factors to classify workers, and you'll need to look at the whole working relationship.


Behavioral Control	Do you set specific work hours, provide detailed instructions, or require company training? If you do, it suggests an employee relationship rather than independent contractor status.	You require John to attend weekly meetings, wear company uniforms, and follow your daily schedule. Despite calling him a contractor, John's working like an employee.
Financial Control	How you pay someone matters. Regular paychecks suggest employees, while project-based payments point to contractors who invest in their own tools and handle their own expenses.	You pay Sarah hourly wages, provide all her tools, and reimburse her expenses. These arrangements point to an employee relationship, not contractor status.
Type of Relationship	Look at the relationship itself. Ongoing work with benefits like health insurance means employee, while temporary, project-based work without benefits suggests contractor status.	Mike works exclusively for you long-term, has no other clients, and receives health insurance benefits. The IRS would likely classify Mike as your employee, not a contractor.

Contractor Misclassification Penalties and Solutions

Getting worker classification wrong can cost your contracting business thousands of dollars per worker. The penalties come from multiple agencies, and each one can hit your bottom line hard.

IRS

You'll face back taxes, interest, and penalties for failing to withhold income taxes, Social Security and Medicare taxes. If you misclassified workers without reasonable basis, you're liable for employment taxes and additional penalties.

Department of Labor

Workers can demand back wages, overtime pay and benefits they should have received. They'll file complaints for minimum wage violations, overtime compensation and other employment protections you didn't provide.

State-Level

States go after you for workers' compensation violations, unemployment insurance penalties and labor law violations. Some states add extra fines if they think you misclassified workers intentionally.

Review all your contractor relationships and convert questionable contractors to employee status. If you're under investigation, consult an employment lawyer and consider the IRS Voluntary Classification Settlement Program.

Workers' Compensation Insurance for Contractors Requirements

Every state has different rules about workers' compensation insurance for contractors.

Most states require workers' comp for contractors only if they're employees (not true independent contractors). If you're a contractor, you need your own coverage once you hire employees, though some states require it even when working solo.

Workers’ Comp for Contractors: Do I Need It or Not?


You're a solo handyman with no employees	Usually optional	Most states don't require coverage for sole proprietors, but some states require certain trades (roofing, concrete, HVAC) to carry it.	Check your state's contractor license requirements.
You're a contractor who hires employees	Required in most states	Nearly all states mandate coverage once you hire your first employee, whether part-time or full-time.	Purchase coverage before your first employee starts working.
You hire contractors (plumbers, roofers, electricians)	Verify their coverage first	If they don't have proper workers' compensation, you could be liable for their medical bills and legal costs.	Require certificates of insurance before work begins.

Workers' Comp for Contractors Requirements

Getting workers' comp requirements wrong leads to daily fines and, worse, forced business shutdowns. Check these four areas to avoid problems:

Your state's rules

Most states require coverage once you hire employees, but the thresholds differ. Texas doesn't require coverage, while California has strict rules even for solo contractors in certain trades.

Industry requirements

If you're in construction, expect stricter rules than other industries. You'll face higher penalties for non-compliance, and some contractor licenses require coverage no matter what.

Worker classification

Some states don't care if you call someone an independent contractor. Florida treats all construction workers as employees for workers' comp purposes, even if they run their own business.

Timing

Most states want you to have coverage before you hire anyone or start work. Some require it the moment you register your business. Miss these deadlines and you'll face daily fines, stop-work orders and back-premium penalties.

How Much Workers' Compensation Insurance for Contractors Do You Need?

You don't have to spend hours figuring out how much coverage you need. These three factors help you choose the right level of financial protection without overpaying:

1
Check state minimums
Start with what your state requires as baseline coverage. These amounts vary from state to state, so contact your workers' compensation board for specific requirements.
2
Assess your risk level
Roofing contractors face different risks than office consultants. If you work in construction or other physical trades, you'll want coverage above state minimums because injuries are more severe and expensive.
3
Consider business size
A solo handyman has different needs than a general contractor with 20 employees. More workers mean more potential claims, so larger operations usually need higher coverage limits.

What Does Workers' Compensation Insurance for Contractors Cover?

Workers' comp for contractors covers specific situations, and knowing these details is helpful when filing a claim.


An electrician falls from a ladder during a wiring job	✓	Work-related injury during normal job duties covers rehabilitation costs, medical expenses, and lost wages.
A roofer injures their back lifting heavy materials on the job site	✓	Lifting injuries during work hours are covered, including ongoing treatment and disability benefits if you can't return to work.
A painter develops respiratory problems from long-term fume exposure	✓	Occupational illnesses from job-related chemical exposure are covered, including long-term medical care and specialist treatments.
A contractor gets hurt in a car accident while driving to the job site	✗	Commuting accidents usually aren't covered. Commercial auto insurance would handle vehicle-related injuries and property damage.
A handyman cuts their finger with tools while working in their home workshop	✗	Home workshop injuries usually aren't covered unless actively working on client projects. General liability insurance might cover client work done at home.
A construction worker gets injured during lunch break at a nearby restaurant	✗	Personal activities during breaks away from the job site aren't covered. Personal health insurance would handle these medical costs.
A contractor develops carpal tunnel syndrome from repetitive drilling work	✓	Repetitive stress injuries from job duties are covered, including medical treatment and ergonomic accommodations to prevent further injury.
A landscaper gets injured while intoxicated on the job	✗	Self-inflicted injuries due to intoxication are excluded from coverage. Personal health insurance and disability insurance would apply instead.
A plumber gets electrocuted due to faulty equipment on the job site	✓	Equipment-related injuries during work are covered regardless of who owns the equipment, including emergency care and ongoing treatment.
A contractor gets assaulted by an angry client during a project dispute	✓	Work-related violence during job duties is covered, though general liability insurance might also help with legal costs from client disputes.

Workers' Compensation Insurance for Independent Contractors: Bottom Line

Workers' compensation insurance for contractors isn't just about covering employee injuries. It also protects your business from expensive lawsuits.

Whether you need it depends on your state and if you have employees, but don't risk hiring uninsured contractors. Your costs will vary based on your industry and payroll, so budget accordingly.

Workers' Compensation Insurance For Contractors: FAQ

We answered frequently asked questions small business owners have about workers' compensation insurance for contractors:

How does workers' compensation insurance for contractors work?

Workers' compensation operates on a no-fault basis, covering medical expenses, lost wages and rehabilitation for work-related injuries regardless of who caused the accident. It pays for emergency treatment, ongoing care and provides partial wage replacement during recovery. Contractors pay premiums based on payroll size and industry risk level.

Do I need workers' comp if I'm a self-employed contractor with no employees?

Most states don't require workers' comp for self-employed contractors. However, some states mandate coverage for high-risk trades like roofing or HVAC. General contractors or clients may need coverage as a work condition. Consider purchasing coverage to protect against work-related medical expenses your personal health insurance might not cover.

Am I liable if the contractors I hire don't have workers' comp?

Yes, you can be liable for medical bills and legal costs if contractors you hire lack proper coverage. If someone classified as an independent contractor functions as an employee, you face penalties and injury liability. Always require certificates of insurance and verify coverage directly with their insurance company before work begins.

How much does workers' comp cost for my contracting business?

Costs vary widely by industry, payroll, and claims history. Low-risk contractors pay much less than high-risk construction operations.

Which states require my contracting business to carry workers' comp?

Most states require workers' comp once you hire employees, but requirements vary. Some states require coverage with your first employee, while in others, you won't need it until you have three to five employees. Texas is unique because it doesn't require most private employers to have coverage. Construction contractors face stricter rules in most states.

How do workers' comp and general liability for contractors differ?

Workers' comp insurance covers your employees' medical bills and lost wages for work-related injuries. General liability protects you from third-party claims like customer injuries or property damage. In most states, you need workers' compensation insurance when you have employees, while general liability is optional but recommended. Most contractors need both coverages.

Can I be fined for not having workers' comp as a contractor?

Yes, contractors face substantial fines for lacking required coverage. Penalties include daily fines, stop-work orders and personal liability for injured workers' costs. Some states assess substantial penalties based on payroll and duration without coverage. States may also revoke contractor licenses and prevent you from bidding on government contracts.

What injuries does workers' comp cover for contractors?

Workers' comp covers work-related injuries like falls from ladders, back injuries from lifting, tool cuts, repetitive stress injuries and occupational illnesses from chemical exposure. It includes emergency care, ongoing treatment, rehabilitation and partial wage replacement. It doesn't cover commuting accidents, lunch break injuries or injuries caused by intoxication.

Do I need workers' comp if I only work with independent contractors?

If you work with true independent contractors, you generally don't need workers' comp for them. Some states treat all construction workers as employees regardless of classification. Always require certificates of insurance from contractors.

When should I buy workers' comp for my contracting business?

Depending on state requirements, you might have to buy workers' comp insurance before hiring your first employee or starting work. Some states require it when registering your business or obtaining contractor licenses.

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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sources

California Contractors State License Board. "Workers' Compensation." Accessed July 15, 2025.
Internal Revenue Service. "Independent Contractor (Self-Employed) or Employee?." Accessed July 15, 2025.
Internal Revenue Service. "Voluntary Classification Settlement Program." Accessed July 15, 2025.
Texas Department of Insurance. "Workers' Compensation Insurance Guide." Accessed July 15, 2025.