Workers’ Comp Requirements Vary by State

THE BASELINE: MOST STATES REQUIRE IT AT ONE EMPLOYEE

Workers’ compensation is regulated state by state, not federally, which means there’s no single national rulebook. That said, the overwhelming majority of states land on a similar baseline: once you have one or more employees, you’re required to carry workers’ comp coverage, full stop. Some states carve out narrow exceptions for very small family-owned businesses or for sole proprietors and partners who choose to exclude themselves from their own policy, but the default assumption for an excavation contractor building a crew should be that coverage is mandatory, not optional.

Penalties for skipping it where it’s required aren’t gentle. Most states treat operating without required workers’ comp as a serious violation, carrying fines, stop-work orders, and personal liability for an employer if a worker gets hurt on an uninsured job. That last point matters most: without a workers’ comp policy standing between you and an injury claim, a single serious injury on site can turn into a lawsuit that goes straight after your business and personal assets.

THE TEXAS EXCEPTION

Texas is the one state that doesn’t require most private employers to carry workers’ compensation at all. Employers there can legally “opt out” and operate as a non-subscriber, though doing so means filing notice with the state and posting workplace notices, and it strips away the legal protections a workers’ comp policy normally provides an employer (namely, protection from a direct lawsuit by an injured employee). Contractors working Texas government or public contracts typically still have to carry it as a contract condition regardless of the state’s general opt-out rule, so “Texas doesn’t require it” isn’t the same as “you’ll never need it” if public work is part of your pipeline.

THE FOUR STATES WHERE YOU CAN’T USE A PRIVATE CARRIER

On the opposite end, four states run monopolistic state funds: North Dakota, Ohio, Washington, and Wyoming. In those states, you can’t shop workers’ comp on the open private insurance market the way you can everywhere else, you buy it directly through the state’s own fund. That’s a structurally different process from the rest of the country, and it catches contractors off guard when a job takes their crew into one of these states for the first time. We cover the specifics of each fund in Monopolistic State Funds: What North Dakota, Ohio, Washington, and Wyoming Require.

COST VARIES AS MUCH AS THE RULES DO

Even among the states that follow the standard private-market model, per-employee workers’ comp costs swing widely. According to MoneyGeek’s 2026 excavation insurance cost analysis, monthly per-employee premiums for excavation crews range from $157 in Indiana up to $701 in New York, driven by each state’s benefit levels, medical cost environment, and litigation climate. A big part of what actually lands on your bill within that range comes down to your classification code and how your crew’s work is coded, which we break down separately.

The bottom line for any excavation contractor operating in more than one state, or planning to: check the workers’ comp rules before you bid the job, not after you’ve already got a crew on site. State-by-state knowledge isn’t a nice-to-have here, it’s the difference between a bid that’s priced correctly and a compliance problem waiting to surface.

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Related: Monopolistic State Funds: What ND, OH, WA, and WY Require · Classification Codes and How They Affect Your Premium