Workers' compensation is the one business insurance line that is mandated by law rather than by a contract. The rules are set state by state, the thresholds are lower than most owners expect, and the penalties for operating without coverage are among the harshest in business regulation — including stop-work orders and personal liability for the owner.
This guide covers the three states we write most: California, Arizona, and Nevada.
California: required from your first employee
California has no small-employer exemption. If you have even one employee — full time, part time, or seasonal — you are required to carry workers' compensation insurance. Roofing contractors must carry it even with no employees at all.
Corporate officers and LLC members who are the sole shareholders may be able to exclude themselves by filing a written waiver, but they must actually meet the ownership requirements to do so. Sole proprietors with no employees are generally not required to carry it, though most general contractors will refuse to hire an uninsured sub regardless of the legal minimum.
Penalties are serious: operating without coverage is a misdemeanor, fines can reach $100,000, and the state can issue a stop-work order that shuts the job down until coverage is in force. If an employee is injured while you are uninsured, you can be personally liable for the full cost of the claim.
Arizona: required from your first employee
Arizona also requires coverage for every employer with one or more employees, including part-time and seasonal workers. Sole proprietors and partners are not automatically covered but may elect coverage for themselves.
The Industrial Commission of Arizona enforces the requirement, and going without exposes the business to civil penalties and to the injured worker's right to sue the employer directly outside the workers' comp system — where the usual liability protections do not apply.
Nevada: required from your first employee
Nevada requires workers' compensation for all employers with one or more employees, with very limited exemptions. Independent contractors are scrutinized closely; misclassifying a worker as a 1099 contractor when they function as an employee does not remove the obligation.
Nevada's Division of Industrial Relations can assess premium penalties plus administrative fines and can hold owners personally responsible for benefits owed to an injured uninsured worker.
The 1099 contractor trap
The most common way businesses accidentally end up uninsured is by assuming 1099 workers do not count. State agencies and insurance auditors apply their own tests — control over the work, who supplies tools, whether the worker serves other clients — and routinely reclassify workers as employees after the fact.
At your workers' comp audit, any subcontractor who cannot produce their own valid certificate of insurance is charged to your payroll. Collecting certificates is not paperwork for its own sake; it is what keeps an audit from turning into a five-figure bill.
Why clients require it even when the state does not
General contractors, hospitals, hospice partners, staffing platforms, commercial landlords, and state Medicaid programs almost universally require proof of workers' comp before you can start work — often at statutory limits with $1M employers liability, plus a waiver of subrogation.
In practice, that means most contractors, home care agencies, and cleaning companies need the policy to win the contract long before the state headcount threshold is a question.
What it typically costs
Premium is calculated as (Annual Payroll ÷ 100) × Class Code Rate × Experience Modifier × State Modifier. A clerical-heavy business may pay well under $1 per $100 of payroll; a roofing or framing crew can pay $15 or more per $100.
Most carriers also have a minimum premium — commonly in the $750–$1,500 range — so a very small payroll does not translate into a very small bill. Our Workers' Comp Instant Estimate on the home page gives you a starting range in about 15 seconds using your class code, payroll, and state.
How to get covered this week
You need three things to bind coverage quickly: your legal entity name and FEIN, an estimated annual payroll by job type, and your loss history for the last three years if you have had prior coverage. With those, most clean-risk accounts can be quoted the same day and bound within 24–48 hours, with certificates issued immediately after.
KTL Insurance Services shops workers' comp across 20+ A-rated carriers in California, Arizona, and Nevada, and issues same-day certificates for active clients. Request a free, no-obligation quote and we will tell you plainly whether you are required to carry it and what it will cost.