Expert answers to all your business insurance questions.
Does my Arizona business need workers’ comp?
If you’ve just started your Arizona business — or if you’re about to hire your first employee — you likely have a lot of questions about workers’ comp coverage. The first one is obvious: Do you even need workers’ comp?
The answer? Probably. But let’s go into this in a little more detail.
What does Arizona law say about workers’ comp?
First of all, the official rule is that all Arizona employers which employ at least one person (full time or part time) must provide workers’ comp coverage. Employers do this by paying premiums to an insurance company which will pay out for a claim in the event of an illness or injury (see what workers’ comp covers in Arizona).
(Do note: employees don’t pay anything for their coverage. This is completely the responsibility of the employer.)
That’s the bare bones. Let’s look at a few specific situations.
Do I need workers’ comp for independent contractors?
You generally don’t need to provide workers’ comp insurance for your independent contractors—as long as their employment is casual and not associated with your normal business. (If you hire a contractor to trim the trees outside your business every month, you probably don’t need to cover that person with workers’ comp insurance.)
That said, sometimes there are disputes about whether a worker should really be considered an independent contractor. This can happen for a number of reasons and, when these disputes arise, the courts tend to look at the “totality of facts” in the matter. For example, the court might ask how long the worker was employed with you, who set the hours of work, who supplied the tools, and whether the work performed was part of your core business offering.
Need an example? Let’s say you’re a restaurant owner who’s been hiring someone to clean your restaurant for a few hours per week—either Thursday or Friday, whenever they have time. You pay the worker as a contractor and give them a 1099 at the end of the year. Do you need workers’ comp for that worker? Probably not. They’re not performing a core business task and they have full control over their schedule.
But what if your restaurant gets very busy and you decide to hire that worker for the same set hours every day? What if you tell them when to show up and exactly what to do? In this case, you should seriously consider covering that contractor with workers’ comp. If that person gets injured on the job, they have a legitimate legal case that they should be considered a regular employee. After all, they’re working significant hours at your business and you control their schedule.
In the end, the court considers lots of facts when deciding these cases. It’s better to be on the safe side and obtain coverage for any independent contractors who do a significant amount of work for your company.
I’m a sole proprietor in Arizona and don’t have any employees. Do I need workers’ comp?
No. If you don’t have any employees, you’re not required to have workers’ comp coverage. You may get coverage for yourself, if you wish, but it’s not your best option (and some insurers won’t provide it).
I have an Arizona LLC. Do I need workers’ comp?
Have any employees? If you do, then yes. As long as you employ at least one person, you need workers’ comp coverage.
I only have one worker. Do I still need workers’ comp?
Yes. If you regularly hire at least one employee—even part-time—you need workers’ compensation insurance. The only exceptions are if the worker is an independent contractor (see above) or if the worker is a domestic servant who works in your home.
Do Arizona corporations need to purchase workers’ comp coverage?
Yes. By Arizona law, a corporation is an employer. If you’re in charge of running a corporation, you’ll need to make sure that you have an active workers’ comp policy for all your employees. (Go here to read about the rules for excluding owners and officers on your Arizona workers’ comp policy.)
Can an employee ask not to be covered under my workers’ comp insurance?
Yes, they can. In Arizona, any of your employees can voluntarily reject workers’ compensation insurance. To do that, they’ll need to provide you with a written notice which clearly states that they are rejecting workers’ comp coverage. (You’ll need to make sure your insurance carrier gets a copy of that notice.) They need to do this before they sustain a work-related injury.
Important to know: While your employees may voluntarily reject coverage, you are not allowed to ask or require them to waive coverage. You’re also not allowed to ask your employees to pay any part of your workers’ comp premium. (Tap here to read about the consequences of not providing workers’ comp in Arizona.)