The rules vary from state to state, but if you have employees, you probably have to have workers compensation insurance.

In some states, even having a single employee triggers the requirement for workers compensation insurance.

Other states have different thresholds for how many employees will trigger the requirement to get workers comp coverage. For example, in New York, with very few exceptions, you have to have workers comp insurance if you have more than 5 employees.

Penalties for not having workers compensation insurance can be painful. In New York, for employers with more than 5 employees, not having required workers’ compensation insurance is a Class E Felony and is punishable by a fine of not less than $5,000 nor more than $50,000 in addition to all other penalties.

Other states have similar penalties for companies that shirk their workers compensation coverage obligations.

Even if your state does not require you to have workers compensation insurance, you may still be required to have it if your customers demand that you do.

For instance, a one-person consulting shop in Illinois that is a sole proprietorship is not required by the state to have coverage. However, if they work at client offices, clients may insist that they obtain coverage.

Larger companies require coverage of their consultants because they are otherwise vulnerable to workers compensation claims if, say, a consultant slips on a wet floor and breaks his or her back.

If you are operating a business and do not have required workers compensation insurance, you need to quickly correct the situation.

Beyond the penalties that you might face if you are caught, you are also at risk of being liable for all of the costs associated with a workplace injury. Most states will hold you personally liable. You won't be able to hide behind the limited liability of your company's legal form.

Beyond the downsides of not having workers compensation insurance, you should get it simply because it's the right thing to do. The insurance ensures that you take care of your employees. After all, without them, where would your business be?