Workers’ compensation in Arizona is insurance that most employers in the state should be familiar with. It provides medical treatment and even partial wage replacement should an employee get hurt or sick while on the job and need to miss time. On the flip side, this insurance protects employers from litigation related to workplace injuries. Many times when employees are covered by workers’ compensation, they are unable to sue employers for damages related to their injuries or illnesses sustained at work.
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Does Arizona require workers’ compensation insurance?
In the state of Arizona, the law requires all public and private employers with at least one (1) employee on staff to carry workers’ compensation insurance. Arizona follows a “no fault” system whereby injured employees receive benefits for industrial injuries, no matter who caused the injury.
An exception applies to casual employees, domestic workers in private homes, and independent contractors. Some business owners, such as members of LLCs, corporate officers, partners in partnerships, and sole proprietors, are not required to be covered by workers’ compensation insurance. Workers’ compensation is a “no fault” system in which an injured employee is entitled to receive benefits for an industrial injury, no matter who caused the job-related accident.
Because Arizona’s workers’ comp rules can feel detailed, the table below summarizes the key requirements so employers can quickly see what coverage they need — and what steps to take to stay compliant.
| Topic | Key details |
| Who must carry coverage | Most Arizona employers must carry workers’ compensation for all employees, whether full-time, part-time, minors, or family members. |
| Independent contractors | Coverage is not required for true independent contractors. Arizona uses the 20-factor test to determine status, with emphasis on control and independence. |
| Sole proprietors | Not required to cover themselves. |
| LLCs and corporate officers | Coverage required unless officers or LLC members opt out by filing a written rejection with the insurer. |
| Domestic workers | Exempt if performing work in a private home. |
| Casual labor | Exempt when the work is occasional and not part of the employer’s usual business. |
| Out-of-state employers | Must carry an Arizona-approved policy if they have employees working regularly in Arizona. |
| Self-insurance | Allowed, but employers must apply to and be approved by the Industrial Commission of Arizona (ICA) and meet financial requirements. |
How do employers purchase workers’ comp insurance in Arizona?
Workers’ compensation insurance can be purchased from private carriers or — if a high-risk company and cannot buy the policy from a private carrier — from a competitive state fund. Your broker can help you research options that make sense for the needs of you and your employees.
Are you required to provide workers’ compensation when working with independent contractors?
For Arizona businesses that hire independent contractors, there’s no requirement to provide workers’ compensation insurance. That said, you need to be sure the person you are working with meets the classification of an independent contractor.
What Arizona workers’ compensation covers
In a nutshell, coverage protects employees who experience accidents or injuries that happen on the job (and need time off to recover). For example, if your employee breaks a foot while moving packages, workers’ compensation can help provide medical benefits.
What is the penalty for not having workers’ comp insurance in Arizona?
There can be some less-than-ideal outcomes for employers who operate without a policy. For example, if you don’t have workers’ compensation insurance:
- An injured employee can either file a civil lawsuit against you or file a workers’ compensation claim through the Industrial Commission of Arizona (ICA).
- If the claim goes to the ICA, which is a Special Fund Division/No Insurance Section may pay the employee’s benefits and then seek reimbursement for:
- All benefits paid,
- A penalty of 10% of those benefits or $1,000 (whichever is greater), and
- Interest on the total amount.
- Even if no claim is filed, the ICA may issue civil penalties for being uninsured:
- $1,000 for the first violation,
- $5,000 for a second violation within five years, and
- $10,000 for a third violation within five years.
- The ICA can also request a court injunction requiring your business to cease operations until valid workers’ compensation coverage is obtained.
The takeaway is that it’s likely not worth the risk of going without this coverage. We’ve also included more information from the Industrial Commission of Arizona.
Do you need workers’ compensation insurance in Arizona as a sole proprietor?
Sole proprietors are not required to have workers’ compensation insurance coverage in Arizona, though they could elect to carry coverage for themselves. However, if there are any employees working for the sole proprietor, the sole proprietor is required to maintain workers’ compensation insurance on them.
More resources for Arizona employers
In addition, here are some resources that you may find helpful.
Workmans’ comp Arizona: Make it part of your action plan
Purchasing a workers’ compensation policy is a legal requirement in Arizona, but it’s also a win-win situation for both you and your employees. For many businesses, their employees are their most valuable resource, so putting their safety first is a no-brainer. Moreover, because this insurance protects employers from litigation related to workplace injury and illness, it can help put their minds at ease. So if you are a business owner in the state, it can be a good idea to understand how policies work and how to set one up to stay compliant.
Please note all material in this article is for educational purposes only and does not constitute tax, benefits or legal advice. You should always contact a qualified tax, legal or financial professional, in your area for comprehensive tax or legal advice.
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.