In almost every U.S. state, employers are required to carry workers’ compensation insurance if they have a certain number of employees. If you’re a business owner in Arizona, you’ll need to purchase workers’ comp insurance if you have at least one employee that doesn’t meet the state’s exemptions criteria.

In this article, we’ll go over who you need to cover, who is exempt, and possible penalties for non-compliance.


How does workers’ compensation insurance in Arizona work?


Workers’ compensation insurance in Arizona uses a “no fault” system. Under a no fault system, an employee can be eligible to receive workers’ comp benefits even if he or she was responsible or partly responsible for the accident which led to their illness or injury.

You can purchase workers’ compensation coverage from any insurance company licensed to issue workers’ comp insurance in the state of Arizona. For a complete list of state-approved carriers, visit the Industrial Commission of Arizona directory.


Who needs workers’ compensation insurance in Arizona?


All employees, including part-time workers, must be covered by your workers’ comp policy in the state of Arizona with a few noted exceptions. Those exceptions are:

  • Sole proprietors with no employees
  • Independent contractors
  • Casual laborers
  • Domestic servants
  • Employees who have voluntarily rejected the coverage requirement.

If you’re a sole proprietor, you aren’t legally required to purchase workers’ compensation coverage for yourself. However, that doesn’t mean you can’t obtain workers’ comp. If you feel you need it to mitigate future risks, you can purchase a policy for yourself.

While you’re not required to provide coverage for independent contractors under state law, bear in mind that if a subcontractor does get sick or injured on the job, they may argue that they were in fact an “employee” and not an independent contractor. Employee vs. independent contractor disputes are common in Arizona and are decided by the courts. The court will consider the “totality of facts”, including:

  • Duration of employment
  • The right to hire or fire
  • The method of payment
  • The extent of the employer’s control over work
  • Who provides the tools
  • Who sets the hours
  • Whether the work was performed in the usual and regular course of the employer’s business.

For more information about Arizona’s workers’ compensation laws and requirements, visit the Industrial Commission of Arizona website.


What are the penalties for not having workers’ comp in Arizona?


Failing to provide legally required coverage to your employees can lead to steep penalties. In Arizona, if an employee files a workers’ comp claim but isn’t covered under a company policy, the Industrial Commission of Arizona’s Special Fund Division will pay their benefits. The ICA will then charge the employer reimbursement for all benefits paid plus an additional 10% fee (or $1000, whichever is the greater amount). Employers who fail to provide proper coverage can also face penalties of $1000, $5000 or $10,000.

However, employees in Arizona have a right to reject coverage for workers’ comp (the decision has to be in writing, signed by the employee prior to any injuries having occurred, and cannot have been coerced by the employer). In this case, there would be no penalty for not providing workers’ comp.


What does workers’ comp cover?

Medical costs

If one of your employees is injured or becomes ill on the job, workers’ comp can cover their immediate medical expenses such as ambulance rides, emergency room visits, x-rays, surgery and prescription medications.

For example, if a kitchen employee reaches into a sink and slices their hand on a broken glass, they might require medical attention. Workers’ comp could cover the costs of their emergency room visit, stitches and pain management prescriptions.

Lost Wages

Many work-related incidents can leave employees unable to work for several weeks or months. Workers’ comp can provide some relief for employees in the form of partial wage replacement.

If an employee breaks their foot in a work-related accident, they could end up stuck at home for multiple months. While they’re out of work, workers’ comp would cover some of their lost wages.

Ongoing Care

Some work-related injuries require long-term care such as physical therapy or pain management. Often, these injuries are more the result of repetitive workplace stress rather than a single traumatic incident. Chronic back issues for construction workers and carpal tunnel syndrome for office employees are two common examples of the types of workers who must receive ongoing care due to repetitive stress. If their claim is approved, workers’ comp can cover the costs associated with their ongoing care.

Death Benefits

If the unthinkable happens and an employee passes away because of a workplace incident, workers’ comp can cover funeral costs and other death benefits for the deceased worker’s family or beneficiaries.