What Happens If You Don't Have Workers' Comp and an Employee Gets Hurt?

Written by Mark Rodgers, President and Founder, Trailstone Insurance Group

A crew leader steps off the back of a trailer, lands wrong, and breaks his wrist. He is out for six weeks. The owner, who never bought workers' compensation because the business still felt "too small," now has one question that a lot of owners only ask after the fact: what happens now?

This post answers that directly, including the real penalties in each of the seven states we serve. We will keep it plain and calm, because this is a solvable problem, not a reason to panic.

Here's the Short Answer

If you do not carry workers' compensation and an employee gets hurt on the job, three things happen in every state we serve.

• Your injured worker still gets paid. Either a state fund covers the claim, or you do, directly.
• You pay for that claim yourself, plus a penalty. Going without coverage does not make the cost disappear. It moves the cost onto your own balance sheet and adds a fine on top.
• You lose your legal shield. Workers' comp normally stops an employee from suing you over a workplace injury. Without it, that protection is gone.

The exact fines and rules differ by state, and Washington works differently from the other six because it runs its own state system. We will walk through both.

The Three Things That Happen No Matter Where You Operate

1. The Injured Worker Still Gets Paid

A common and expensive myth is that if a business has no workers' comp, an injured employee simply has nowhere to turn. That is not how it works.

Several of our states run an uninsured-employer fund for exactly this situation. Arizona has a Special Fund, Utah has an Uninsured Employers' Fund, and Kansas has the Kansas Workers Compensation Fund. These funds pay the injured worker's medical and wage benefits, then come after the business to get their money back.

In Colorado, Oregon, and Idaho, the injured worker is still entitled to benefits, and the uninsured business is held directly responsible for paying them. The bottom line is the same everywhere: the worker gets care, and the bill lands on the owner.

2. You Pay for the Claim, Plus Penalties

The cost of a single claim is what surprises owners most. Colorado's Division of Workers' Compensation puts the average claim at roughly $10,000, and a severe injury can run upward of $500,000.

Now add the state penalty on top. Depending on the state, that can mean a daily fine, a percentage penalty added to the benefits owed, or a civil penalty tied to the premium you avoided. In several states, those numbers reach five figures fast.

Compare that to the premium. For most small businesses, a workers' comp policy costs a fraction of a single serious claim. That is the whole math problem in one sentence.

3. You Lose "Exclusive Remedy," Which Means You Can Be Sued

Workers' comp is often called the grand bargain. Your employee gives up the right to sue you over a workplace injury, and in exchange they get guaranteed no-fault benefits, no matter who caused the accident.

When you carry coverage, that trade protects you. When you go without it, the trade collapses.

In states like Utah and Oregon, an injured worker can bypass the workers' comp system entirely and sue the business directly in civil court, where damages can include pain and suffering with no benefit cap. Oregon goes a step further and strips away several of the legal defenses an employer would normally use. In Oregon, corporate officers and directors can also be held personally liable for the claim.

What It Costs in Each of Our Seven States

Here is where the details matter. Every state sets its own trigger for when coverage is required and its own penalty for going without. The figures below were verified against each state's own agency and are current as of August 2026. Because penalty amounts adjust over time, always confirm the current number for your state.

Notice the pattern. The penalty scales with how the state chooses to enforce it, but the direction is always the same. You do not save money by skipping coverage. You defer the cost and add penalties to it.

Washington Is Different: The L&I System

Washington deserves its own section because it does not run like the other six states. Washington operates a monopolistic state fund through the Department of Labor and Industries, known as L&I.

In the six private-market states, an employer buys workers' comp from a private carrier or a competitive state fund. In Washington, most employers buy their coverage directly from L&I. Very large employers can apply to self-insure, but the private-carrier route does not exist for standard workers' comp there.

Two other things make Washington unique. Premiums are based on hours worked rather than total payroll. And both the employer and the employee contribute, with the worker's share coming out of their paycheck.

If a Washington employer never sets up an L&I account and a worker gets hurt, the employer faces the penalty for operating without coverage and can be held directly responsible for the injured worker's costs. Because the state controls the coverage, our job in Washington is different from the other six states, and we will come back to that in the call to action.

"But They're a 1099 Contractor" and Other Costly Assumptions

The single most common way owners end up uninsured by accident is by assuming a worker does not count. Two assumptions cause most of the trouble.

The first is the 1099 label. Handing someone a 1099 does not automatically make them an independent contractor in the eyes of the state. Most of our states presume that anyone you pay for work is an employee unless you can prove otherwise, and the burden of proof is on you.

The second is the uninsured subcontractor. If you hire a subcontractor who does not carry their own workers' comp, and one of their people gets hurt on your job, several states will treat those workers as your responsibility. That is why collecting a certificate of insurance from every subcontractor is not paperwork for its own sake. It is protection.

If either assumption is wrong, you can be uninsured without knowing it, which lands you right back in the penalties above.

The Smart Way to Handle It

Getting workers' comp right is less about buying a policy fast and more about setting it up correctly. A well-built program protects your people, keeps you compliant, and controls your true cost of risk over time.

• Confirm whether you are required. Check the trigger for your state in the table above. Remember that Kansas uses a payroll threshold and the others generally start at one employee.
• Classify every worker correctly. Misclassifying employees as contractors is the fastest route to a surprise penalty. When in doubt, treat the worker as covered and verify.
• Collect certificates of insurance from every subcontractor. Keep them current. An expired certificate can leave you exposed to a claim you never expected.
• Gather your payroll by class code and your loss runs before you shop. Accurate class codes and a clean claims history are what let us price your coverage fairly.
• Review your coverage 60 to 90 days before renewal. Shopping under a deadline never produces your best result. Working ahead of the renewal date gives us room to compare the market properly.

This is where an independent agency earns its keep. Instead of taking whatever one carrier offers, we compare your options and build the program around your actual risk, not just the lowest sticker price.

Frequently Asked Questions

Is workers' comp really required if I only have one employee?

In most of the states we serve, yes. Colorado, Arizona, Utah, Oregon, and Idaho generally require coverage as soon as you have one employee. Kansas is the exception, using a gross annual payroll threshold of $20,000 instead of a headcount.

My worker is a 1099 contractor. Am I off the hook?

Not automatically. A 1099 form does not settle the question. Most states presume anyone you pay is an employee unless you can prove they are a true independent contractor, and the burden is on you.

Can an employee sue me if I don't have coverage?

Yes. Carrying workers' comp normally blocks that kind of lawsuit. Without it, you lose that protection, and in some states the worker can sue you directly in civil court for damages that go beyond standard benefits.

Will the state really shut my business down?

It can. Every state we serve has the authority to issue a stop-work order or seek a court injunction that halts operations until you get compliant.

Could I face criminal charges?

In some cases, yes. Willful failure to carry coverage is a felony in Arizona and a misdemeanor in Idaho and Kansas. Utah can pursue criminal charges in egregious cases.

What if I just pay the medical bill myself and never tell the state?

That rarely ends the matter. The worker can still file a claim, a state fund can still get involved, and the penalty for having been uninsured can still apply. Quietly absorbing the bill does not erase the compliance problem.

How does the cost of coverage compare to a claim?

For most small businesses, a year of premium costs far less than a single serious claim. When the average claim is around $10,000 and a severe one can exceed $500,000, the premium is the affordable side of that trade.

Does Washington work the same way as the other states?

No. Washington runs a monopolistic state system through L&I. Most employers buy coverage directly from the state, premiums are based on hours worked, and both employer and employee contribute.

Your Workers' Comp Checklist

• Confirm your requirement using the trigger for your specific state.
• Classify every worker correctly and re-check anyone you treat as a contractor.
• Collect and update certificates of insurance from every subcontractor.
• Pull your payroll by class code and your loss runs before shopping coverage.
• Schedule a coverage review 60 to 90 days ahead of renewal so there is time to do it right.
• Ask for a written summary of what you carry and where your gaps are.

What to Do Next

If you are not certain whether you are required to carry workers' comp, or whether your current policy is set up correctly, the fix is straightforward. We will confirm your requirement for your state, check your classifications, and compare your options through our Commercial TRAC process.

In our six private-market states, that means shopping your coverage across our 40-plus A-rated carriers. In Washington, where coverage runs through L&I, our role is different. There we help you set up your account correctly, get your class codes right, and advocate for you through the claims process.

This article is educational and is not legal advice. Workers' compensation laws, requirements, and penalty amounts change, and the facts of your specific situation matter. For legal questions about compliance or liability, consult a licensed attorney in your state.

Written by Mark Rodgers, President and Founder, Trailstone Insurance Group