Workers compensation is required in nearly every state from your first employee. Owners can usually exclude themselves, but 1099 contractors without their own coverage get treated as employees at audit and in claims. Who this is for: Technology services firms and managed service providers hiring a first employee or paying 1099 field technicians.
The short version
- Nearly every state requires coverage at the first employee, with penalties that dwarf the premium.
- 1099 contractors without their own policy show up as payroll on your audit.
- Collect a workers compensation certificate from every contractor before they invoice.
- Remote employees in other states need those states listed on the policy.
- Office class codes are cheap. The audit bill for getting it wrong is not.
The rule, and the exceptions
In nearly every state, workers compensation becomes mandatory the moment you have one employee, and a handful of states set the threshold at two, three, or five. Owners and officers can often exclude themselves, but that election has to be filed properly rather than assumed. Penalties for going without are among the harshest in commercial insurance, including stop work orders and personal liability for medical costs.
Where 1099 contractors go wrong
This is the expensive part for technology services firms and managed service providers. Using independent contractors does not remove the exposure. Two separate mechanisms bring them back:
- Premium audit. If a 1099 contractor does not carry their own workers compensation, most state rules and most carrier audits treat them as your employee for premium purposes. You get an audit bill after the year is over.
- Claims. If they are hurt while working for you and have no coverage of their own, a claim can be filed against your policy, and if you have no policy, against you personally.
For a technology services firm using 1099 field technicians, offshore network operations partners, and specialty security vendors, the defense is documentation: a signed agreement, a certificate of insurance showing their own workers compensation, and a file that shows they run an independent business.
What it costs
| Situation | What you pay |
|---|---|
| Owner only, exempt | Often nothing, though a ghost policy may be needed for certificates |
| First administrative or professional employee | $500 to $2,200 |
| Staff who travel to client sites | Slightly higher, driven by class code and payroll |
| 1099 help with no certificates on file | An audit bill covering their pay as if it were payroll |
Professional office class codes are among the cheapest in workers compensation, commonly a fraction of a percent of payroll. The cost of getting it wrong at audit is far larger than the premium.
What to do this week
- Collect a current workers compensation certificate from every 1099 contractor before they invoice you.
- Confirm your officer exclusion election is on file with the carrier and the state, if you have made one.
- Check that remote employees in other states are actually covered. Workers compensation is state specific and a policy listing only your home state can leave an out of state hire uncovered.
- Tell your broker before a new hire starts rather than at renewal.
Related reading: workers comp for 1099 contractors.
What this looks like in practice
Illustrative example. Numbers are typical of claims we see and are not a promise of how any specific claim would be handled.
The setup: A technology services firm that used 1099 field technicians for a busy season without collecting certificates.
The claim: The matter started with a ransomware event at a managed client. Backups had silently failed for six weeks and the client claimed $640,000 in downtime and recovery cost.
The cost: $88,000 in defense costs and $420,000 in settlement, $508,000 in total, paid inside the policy limit after the retention.
The lesson: At the year end audit the carrier added the contractor payments to payroll and issued an additional premium bill. Certificates collected up front would have removed the charge entirely.
Frequently asked questions
Q: Do I need workers compensation for my first employee?
In nearly every state, yes, from the first employee. A few states set the threshold at two to five employees. Owners can often exclude themselves, but the election must be filed correctly.
Q: Do 1099 contractors need to be on my workers compensation policy?
Not if they carry their own and you have the certificate on file. Without that certificate, a premium audit will usually charge you for their pay as if they were employees.
Q: What happens if a contractor without coverage gets hurt on my job?
The claim can land on your policy, and if you have no policy it can land on you personally. This is the single most common uninsured loss for firms that rely on 1099 help.
Q: How much does workers compensation cost for an office based firm?
Professional office class codes are inexpensive, commonly $500 to $2,200 a year for a small technology services firm. Payroll, state, and class code drive the number.
Q: I have remote employees in other states. Am I covered?
Only if those states are listed on the policy. Workers compensation is state specific and a policy that names only your home state can leave a remote hire uncovered. Tell your broker where every employee sits.
Q: What is a ghost policy?
A minimum premium workers compensation policy for an owner only business, bought mainly so you can produce a certificate for clients who require one. It covers no employees because there are none.
How Morrow helps technology services firms and managed service providers
Morrow is a licensed independent commercial insurance brokerage that specializes in technology services & managed service providers. Getting workers compensation and contractor documentation right is exactly the kind of question we answer every week, and because we place this coverage every day we know which carriers write it well, which forms are broad, and which contract language actually needs an endorsement behind it.
- We read the contract clause and tell you what your current policy already does and does not do.
- We market your account to carriers that have real appetite for technology services firms and managed service providers rather than whoever answers first.
- We issue certificates the same day a client asks, with the endorsements listed correctly.
- We stay on the file at renewal so limits, retroactive dates, and contract requirements do not quietly drift.
Get in touch and we will see how we can help. Tell us what you do, send over any contract that is driving the requirement, and send us the question and we will tell you where you stand. Start at morrowinsure.com or reach the team through the contact options on that page.
One more thing. This article is general information for technology services firms and managed service providers and is not legal advice, tax advice, or a statement of coverage. Policy wording controls in every case, and forms vary by carrier and by state. Have a licensed advisor review your own policy and your own contract before you rely on any of it.
Last updated: Reviewed by the Morrow commercial lines team. Last updated August 2026.