It is imperative for your organization to thoroughly evaluate its workers’ compensation insurance coverage before any staff members are injured on the job. Ensuring your organization has adequate insurance protects your employees and safeguards your business from potential legal and financial liabilities.
Determining whether your organization is legally required to provide this coverage under your state’s laws is essential, as regulations—e.g., minimum employee thresholds, eligible employee types, exemptions, and even the level of coverage required—can vary significantly from state to state.
Compliance with these laws and any related regulations is crucial to maintaining your organization’s integrity and operational stability. In some states, non-compliance is not just a legal risk—it could bring your business to a standstill.
This guide will explore the workers’ compensation laws and regulations of five example states.
TEXAS: DESIRED BUT NOT REQUIRED
Texas is one of the few states that does not require an organization to maintain workers’ compensation coverage. However, some private companies must provide coverage for their on-site employees when they contract with government entities. While not required, coverage may be a good idea to mitigate financial risk and to obtain certain protections when a lawsuit is filed against an organization for on-the-job injuries.
If you do not provide coverage, you are considered a “non-subscriber,” and there are specific requirements you must follow including: filing an annual notice with the Texas Department of Insurance Division of Workers’ Compensation (DWC); posting certain notices in office spaces and worksites; and informing workers in writing that they are not covered by workers’ compensation insurance.
Further, a non-subscriber with four or more employees must report to the DWC: any on-the-job injuries sustained by an employee that cause them to miss more than one day of work; illnesses that occur as a result of an employee’s occupation; and fatalities that occur from an on-the-job injury. These must be reported by the seventh day of the month following the occurrence. There are exemptions from this reporting requirement for certain types of employees, including domestic workers and ranch and farm hands, among others.
If you are a subscriber but then cease providing coverage, you must likewise notify the DWC that coverage has ceased via DWC Form-005. If your organization is located in Texas, whether you are a non-subscriber or not, you should familiarize yourself with the timing requirements for submission of forms to the DWC as well as required notices, which can be found on the Texas Department of Insurance website.
There are several ways to provide coverage in Texas, including, for example, through a licensed insurance distributor, by self-insuring, or by joining a self-insurance group. Each of these options carries certain requirements, such as the size of your business and its financial capacity to self-insure, which you should consider when determining which option is right for you.
If you decide to provide workers’ compensation coverage for your employees, you are considered a “subscriber” and are protected from lawsuits based on work-related injuries for covered employees. This is because the Texas Workers’ Compensation Act requires prompt payment of claims for medical expenses and lost wages for injured covered employees.
If you decide not to provide workers’ compensation insurance, as a non-subscriber, you risk being subject to lawsuits based on work-related injuries.
Though it is not required, it should be noted that most Texas employees are covered by workers’ compensation insurance. However, some larger entities prefer to either self-insure or remain as non-subscribers.
OKLAHOMA: MANDATORY FOR MOST
In Oklahoma, as in most other states, employers with five or more employees are generally required to provide workers’ compensation insurance. They can purchase this insurance from either a private insurance company or CompSource Mutual Insurance Company, a state-created entity offering coverage for both public and private employers in Oklahoma. Alternatively, employers can fulfill their workers’ compensation obligations by self-insuring as an own-risk employer or by joining a group self-insurance association.
Regardless of the type of coverage chosen, the law mandates that all employees receive the same level of benefits. There are some categories of workers for which coverage is not required, including, for example, real estate agents who are compensated on a commission basis and truck drivers who are owner-operators.
Any employer in Oklahoma who is required to obtain coverage but fails to do so may be charged with a misdemeanor, fined, and even have their operations ceased by the Commissioner of Labor until insurance is procured.
COLORADO: ESSENTIALLY EVERYONE
In Colorado, employers who employ one or more employees must carry workers’ compensation insurance. This includes employees of all types, including part-time, full-time, and family-run businesses. If you are paid for your work in Colorado, you are presumed to be an employee.
There are two types of workers’ compensation insurance to choose from: commercial insurance from an insurance company or self-insurance. Self-insurance is only available for employers of 300 or more employees.
If you fail to obtain workers’ compensation insurance in Colorado you may be subject to a fine of $500 per day until you procure coverage and, as in Oklahoma, may have your business shut down until you can show proof of coverage.
Entities whose only employees are owners are not required to maintain workers’ compensation coverage, and likewise, employers are not required to obtain such coverage for certain categories of workers, such as officers of corporations, for example.
UTAH: EVERYONE ON BOARD
In Utah, all employers must retain workers’ compensation coverage for their employees. They can do this by obtaining a policy through the state’s insurer of last resort, the Workers’ Compensation Fund. Employers may obtain coverage through a private insurance company, or they can provide coverage through self-insurance, but only if they obtain authority to self-insure through the Labor Commission.
It is much less expensive to obtain workers’ compensation insurance than to risk going without it. Employers who do not obtain coverage can be subject to monetary fines and may have their operations shut down. Further, they will lose protection from lawsuits against them by injured employees. If they do retain coverage, insurance claims are the sole remedy for an injured employee.
ILLINOIS: NON-COMPLIANCE HAS COSTLY CONSEQUENCES
In Illinois, employers must provide workers’ compensation insurance for nearly all employees, including part-timers, new hires, and those injured on the job. Even with just one employee, compliance is mandatory.
Failing to secure workers’ compensation insurance in Illinois can lead to severe consequences. Employers who knowingly neglect this requirement face fines of $500 per day, with a minimum penalty of $10,000. Corporate officers may also be held personally liable if the company fails to pay. A negligent lapse in securing insurance constitutes a Class A misdemeanor, while a knowing failure escalates to a Class 4 felony.
Employers lose protection under the Workers’ Compensation Act without proper coverage, exposing them to unlimited civil liability if an employee is injured during the uninsured period. In such cases, the employer must prove in court that they were not negligent. Additionally, the Commission may issue a work-stop order, forcing the business to halt operations until insurance is obtained.
Ensure coverage to avoid these significant legal and financial repercussions.
A LEGAL SAFETY HARNESS
Understanding and adhering to your state’s workers’ compensation laws is not just a matter of legal compliance—it’s a critical component of risk management for your business. As demonstrated by the variations in requirements across Texas, Oklahoma, Colorado, Utah, and Illinois, each state has its own unique regulations that could significantly impact your operations. Failing to secure adequate coverage can lead to severe legal, financial, and operational consequences, including fines, lawsuits, and even the suspension of your business activities.
Consult with legal and insurance professionals to make informed decisions on coverage. If you skip coverage, you might as well be leaping without a harness—because fines, lawsuits, and shutdowns are waiting below. By securing the right protection, you’re not just looking out for your employees—you’re making sure your business doesn’t hit the ground.
Katie Stahl is senior counsel at Mudd Law and runs the firm’s Houston office. Mudd Law also has offices in Chicago and Park City. The firm’s attorneys are licensed in Texas, Illinois, Indiana, Colorado, Connecticut, and Utah. In addition to assisting businesses and individuals with their copyright, trademark, privacy, litigation, and general counsel needs, Stahl currently serves on the Computer and Technology Section Council for the State Bar of Texas and co-edits the section’s Circuits Law Journal. muddlaw.com
