What is workers' compensation insurance?

Workers' compensation (WC) is a state-mandated insurance system that's fundamentally different from liability insurance. It's the primary reason homeowners should insist on an insured contractor.

How workers' compensation works:

1. Mandatory in 49 of 50 states — every state except Texas requires workers' comp for employers with 1+ employees (thresholds vary; California requires for any employee, some states exempt very small employers).

1. No-fault system — an injured employee recovers medical expenses and lost wages regardless of who caused the injury, including their own negligence.

1. Exclusive remedy — in exchange for guaranteed no-fault coverage, employees generally waive the right to sue their employer for workplace injuries.

1. Paid by employer — premiums based on payroll and work-class risk code (roofing is higher than office work).

What workers' comp covers:

• Medical expenses (100%).
• Temporary total disability (typically 66 2/3% of wages, up to a state-set cap).
• Permanent disability ratings.
• Vocational rehabilitation.
• Death benefits.

Why homeowners should care:

If the contractor lacks workers' comp:

1. Injured worker may sue homeowner directly — without WC's exclusive-remedy protection, they can sue anyone.
2. Homeowner may be treated as employer — especially if contractor is unlicensed. Homeowners policies often exclude business-related liability.
3. Liens against property — unpaid medical bills can attach as liens.
4. State enforcement — the state may fine the contractor, but the homeowner remains exposed.

Sole-proprietor exemption:

• Most states allow sole-proprietor contractors (no employees) to waive their own workers' comp coverage for themselves.
• This is NOT the same as "no workers' comp at all."
• Verify: does the contractor work alone, or use subs/employees?
• Even if GC is sole proprietor, verify any SUBs on the project carry their own WC.

California specifics:

• Every CSLB-licensed contractor must provide either (a) workers' comp certificate or (b) sole-proprietor exemption to maintain license.
• CSLB license verification shows WC status.
• California's State Compensation Insurance Fund (State Fund) is a major WC carrier.

How to verify:

1. Request COI showing WC carrier and policy number.
2. Call the state WC board to verify current coverage.
3. California: cslb.ca.gov license lookup shows WC status.
4. If contractor claims sole-proprietor exemption, verify no subs without WC on the project.

Red flags:

• Contractor can't provide WC COI.
• COI shows expired coverage.
• Contract work classified as "independent contractor" when workers look like employees (misclassification is common fraud pattern).
• Multiple workers on site but only sole-proprietor exemption in place.

Texas specifics:

• Texas is the only state where WC is optional.
• Texas employers without WC ("non-subscribers") can be sued by injured employees in court.
• Texas contractors without WC are higher risk for both themselves and homeowners.

AskBaily verifies workers' comp coverage for every matched contractor with employees, and verifies sole-proprietor exemption where applicable. See /ask/what-insurance-does-a-general-contractor-need for the broader insurance framework.