Who Pays for Workers’ Compensation?

Workers’ compensation benefits cover employees’ expenses after a work-related injury or illness, but who pays for workers’ compensation insurance premiums? Here’s the scoop.

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Who pays for workers’ compensation insurance is straightforward: Employers pay. Although workers’ compensation benefits cover expenses employees face after a workplace injury or illness, it’s the employers who pay the premiums.

Not all states legally require employers to carry workers’ compensation insurance, but purchasing coverage is still widely recommended. With recent claims amounts averaging $41,000 or more,¹ declining it to save a little money can end up being a costly decision.

Why employers pay for workers’ compensation insurance

The responsibility of occupational safety primarily rests with employers. Hence, employers are often required by state law to purchase workers’ comp coverage for their employees. Whether or not you need a workers’ compensation policy, it’s an important complement to safe workplace equipment and practices.

Because workers’ comp insurance is the employer’s responsibility, the premiums are paid solely by the employer. They aren’t deducted from employee pay like some other insurance premiums are.

Thus, employers should budget for workers’ compensation costs whenever they make staffing changes, especially if hiring or increasing pay.

How much do employers pay for workers’ compensation?

Premiums for workers’ compensation are based on many factors, such as number of employees, employee payroll, industry classification, job classification, and past claims history. Workers’ compensation costs thus vary substantially.

Workers’ compensation payment channels

Employers may procure workers’ compensation policies in a few different ways. What options are available depends on the state where a business has employees.

State-run agency

Many states have statewide workers’ compensation programs. When businesses buy workers’ comp coverage through a state agency, they make payments directly to the state. The state’s workers’ compensation board will adjudicate any claims that are filed, determining eligibility and distributing any workers’ compensation payouts.

In states that have their own programs, purchasing workers’ compensation coverage through the state government program might be mandatory or optional:

  • Mandatory state programs: North Dakota, Ohio, Washington, and Wyoming have monopolistic state funds in which the state-run program is the only option.
  • Optional state programs: Arizona, California, Colorado, Hawaii, Idaho, Kentucky, Louisiana, Maine, Maryland, Minnesota, Missouri, Montana, New Mexico, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, and Utah all have competitive state programs. Businesses can compare these to what insurance companies offer.

State programs provide standard coverage, have standard terms, and meet their respective states’ workers’ compensation laws.

Who it’s for: All employers must purchase workers’ compensation coverage from the state program if in states that have monopolistic programs. This includes employers who are located in other states but hire workers in a monopolistic state. Most employers should consider state-administered coverage where the program is competitive.

Private insurer

Most states allow businesses to buy coverage from private insurance companies. Private insurers offer workers’ compensation policies as a standard business insurance.

When coverage is purchased through a private insurer, premiums are paid to the insurance company. The insurer then pays benefits for work-related illnesses and workplace injuries, without charging any additional fee beyond a policy’s premiums.

Any policies that insurers offer should meet the coverage requirements of the state where they’re underwritten. If businesses hire employees in other states, they should ensure that their policy also meets those states’ requirements.

Who it’s for: Most small and midsize business owners should consider purchasing from a private insurance company if it’s an option. Small businesses often don’t have the resources to administer their own policy and would struggle to honor a workers’ compensation claim.


Larger businesses may be able to choose self-insurance, taking full responsibility for workers’ compensation claims. When self-funded, a business must be able to pay any injured workers’ claim expenses that arise. Those can include lost wages, medical expenses, rehabilitation, retraining (for permanent disability), funeral costs, death benefits, and/or missed wages.

Businesses that self-insure may hire a third-party administrator (TPA) to handle the paperwork and processing of claims. Still, it’s the business that pays for claims and the TPA fee. Several third-party services specialize in health administration and workers’ compensation.

Who it’s for: Self-insuring should be reserved for large corporations. Companies normally only consider this option once they have so many employees that a private policy becomes particularly expensive. Before taking this step, companies should be sure they can afford multiple potential claims. A single auto accident involving 4 employees could easily exceed $300,000 if the claims are only average. They also need to have enough claims that the administrative costs of hiring a TPA are worthwhile.

Businesses that employ people in high-risk jobs might look into self-insuring slightly sooner than other businesses would. Workers’ comp for high-risk jobs can cost significantly more to purchase.

Purchase workers’ compensation

Review your business’s employment situation and state workers’ compensation laws and requirements to determine which of these channels makes sense for you.

For more information, get our full guide on workers’ compensation. For HR and business management news, tips, tools, and resources, visit Workest by Zenefits daily.

  1. National Safety Council Injury Facts
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