Does workers' compensation cover out-of-state employees?
If your employees work in multiple states, your workers’ compensation insurance won’t necessarily cover everyone in your company. You might need to purchase workers’ compensation coverage in each state where your employees are located.
In this guide, we’ll explain everything you need to know about out-of-state workers’ compensation, including when it’s required, how it works for temporary vs. permanent employees, and how to get workers’ compensation for your business.
When is workers’ compensation insurance required?
Workers’ compensation is required for most businesses with workers that qualify as part-time or full-time employees. If any of your employees get sick or injured performing work-related duties, your workers’ compensation policy will cover their medical expenses and lost wages.
Workers’ compensation laws vary by state. Each state has unique requirements around which businesses need to carry workers’ compensation, which businesses are exempt from workers’ comp, and the penalties for not having workers’ compensation insurance coverage.
Location is a key factor in workers' comp coverage requirements
In many states, businesses must purchase workers’ compensation as soon as they hire their first qualifying employee. Other states have different requirements.
For example, Alabama state law only requires businesses with five or more employees to get workers’ compensation. In Louisiana, businesses aren’t required to get workers’ compensation for real estate agents, some non-profit employees, performers, and some public officials.
Texas is the only state that doesn’t require workers’ compensation at all.
Who qualifies for a workers' comp exemption?
Some business owners are also exempt from workers’ compensation. For instance, workers’ comp isn’t required for limited liability companies (LLCs) and partnerships that have no employees.
Sole proprietors, like freelancers and independent contractors, also don’t have to carry workers’ compensation for themselves. However, these business owners may choose to self-insure if they want protection against work-related injuries and illnesses.
Does workers’ comp cover employees temporarily working out of state?
If your business has employees who are working in another state temporarily, your workers’ compensation insurance may cover them. However, this is usually only the case if you’ve purchased extraterritorial insurance, which is also called “other states coverage.”
Other states coverage extends your workers’ compensation coverage to employees who are working out of state for a short period. This might include employees who travel for several weeks at a time or occasionally work in another state that’s not their home state.
If the employee has a work-related injury or illness while working out of state, they can file a workers’ compensation claim in the state where the injury or illness occurred.
For example, let’s say you have an employee that usually works in California, and they get injured on a short work trip to Arizona. In this case, they could file a workers’ comp claim in Arizona. Your business wouldn’t get penalized, and you wouldn’t have to pay for the claim out of pocket.
Your temporary out-of-state employees will also be covered under your workers’ compensation policy if the states have a limited reciprocity agreement.
Your temporary out-of-state employees will also be covered under your workers’ compensation policy if the states have a limited reciprocity agreement.
With this agreement, you’re allowed to have employees working in another state for a short period without purchasing workers’ comp in that state. Injured employees can file a claim if their injury or illness occurred out of state and receive the same workers’ compensation benefits.
However, not all states recognize workers’ compensation reciprocity, and the benefits aren’t always the same. In addition, this type of agreement may only apply to businesses in certain industries, or for certain lengths of time.
If your business employs temporary out-of-state workers, it’s important to check the details of your workers’ compensation policy. If there’s no limited reciprocity agreement, you must purchase workers’ comp in the states where your employees work. Otherwise, you could face penalties.
How do you buy out-of-state workers’ comp coverage?
It’s becoming more common for businesses to have fully remote teams or employees who work across state lines. If your business has permanent out-of-state employees, you’ll need to get a workers’ compensation insurance policy in each of the states where your employees are located.
There are two ways to buy workers’ comp for out-of-state employees.
- The easiest way to get coverage for out-of-state employees is to purchase workers’ compensation from an insurance carrier that’s licensed in all the states where your employees live.
- The other option is to purchase separate workers’ compensation policies from insurers in each state where your employees are located. If your insurance company isn’t licensed in every state where your employees work, you might have to choose this option.
Every time you hire a new out-of-state employee, you must make sure they’re covered to avoid legal issues and penalties. If your employer is licensed in all 50 states, you can add a new state of residence to your current policy. You can also purchase a separate policy for that employee.
Before you purchase out-of-state workers’ compensation coverage, you will need to check and see if your state requires you to get a policy from a state-run workers’ comp fund, sometimes referred to as "monopolistic states" with reference to workers' comp.
What are the monopolistic states for workers' compensation insurance?
The four monopolistic states are:
If you have employees in either of these states, you must purchase workers’ comp from the state-run fund, instead of a private insurance company. This coverage would be an addition to the workers’ compensation you already have for workers in other states.
How much does out-of-state workers' compensation cost?
The average cost of workers’ compensation for a small business is $45 per month. However, your premium is calculated on several factors including:
- Industry
- State(s) where your employees are located
- Number of employees
- Workers' comp claims history
- Total annual payroll
If you’ve been running payroll in multiple states for a long time, the National Council on Compensation Insurance (NCCI) might use an interstate rating to determine your workers’ comp premium.
The NCCI rating is based on your workers’ comp claims history. If you’ve filed claims in multiple states, you will likely pay a higher premium.
However, not all states use NCCI ratings. Currently, 35 states use the standard NCCI system, 10 states use modified NCCI class codes for their ratings, and five states use their own system for analyzing risk.
If your business has a presence in a state that doesn’t use the standard NCCI rating system, your premium could be affected by factors besides claims history.
Buy workers’ compensation insurance for your small business today
Workers’ compensation insurance is a requirement for many small businesses. But even if your business is exempt, having workers’ compensation coverage can still be beneficial.
Complete Insureon’s easy online application today to get quotes for workers’ compensation insurance from top-rated U.S. carriers. You can also consult with a licensed insurance agent about your business insurance needs. Once you find the right policy for your small business, you can begin coverage in less than 24 hours.
Elizabeth Rivelli, Freelance Writer
Elizabeth is a freelance writer with extensive experience covering commercial insurance and personal insurance lines. Her work has been featured in dozens of online finance publications, including Forbes, Bankrate, and Investopedia. Elizabeth also writes for several insurance carriers.
