Who Is Required To Carry Workers' Compensation in Arizona?
Arizona law is straightforward on the surface — if you have employees, you must carry workers' comp — but the details matter. Here's a clear breakdown of who must be covered, who can be excluded, and what happens if you don't comply.
Introduction
Arizona's workers' compensation laws are straightforward on the surface — if you have employees, you must carry workers' comp — but the details matter. Whether you're a small business owner, nonprofit administrator, contractor, or landlord with maintenance staff, understanding these rules protects both your organization and your people.
Below is a clear breakdown of who is required to carry workers' compensation in Arizona, who is exempt, and what employers need to know to stay compliant.
The Core Rule: Nearly All Arizona Employers Must Carry Workers' Comp
Arizona law (A.R.S. § 23-901) requires every employer with one or more employees — full-time, part-time, seasonal, or minors — to carry workers' compensation insurance.
This includes:
- Small businesses
- Nonprofits
- LLCs and corporations
- Sole proprietors with employees
- Contractors and trades
- Family-owned businesses
If you pay someone to perform labor, Arizona considers them an employee unless a strict independent-contractor test is met.
Who Must Be Covered
Arizona requires coverage for:
- W-2 employees
- Minors — even if employed unlawfully
- Part-time or seasonal workers
- Family members who are paid employees
- Temporary workers
- Remote employees working from home in Arizona
If they perform work and receive compensation, they must be covered.
Who Can Be Excluded
Arizona allows certain individuals to opt out of coverage — but only if the proper forms are filed with the Industrial Commission of Arizona (ICA).
- 1Sole proprietors (no employees). A sole proprietor with no employees is not required to carry workers' comp.
- 2Partners in a partnership. Partners may opt out of coverage.
- 3Corporate officers & LLC members. Corporate officers and LLC members actively working in the business are considered employees unless they file a written rejection with the ICA.
LLC member exclusions
Corporate officer exclusions
Independent Contractors: The Most Misunderstood Category
Arizona uses a control test to determine whether someone is truly an independent contractor. Simply issuing a 1099 does not exempt an employer from workers' comp requirements.
A worker is likely an employee if you:
- Control how the work is done
- Provide tools or equipment
- Set the schedule
- Supervise the work
- Are the worker's only source of income
Misclassification is one of the most common reasons Arizona employers face fines.
For more detail: Independent contractor rules.
Penalties for Not Carrying Workers' Compensation
Arizona enforces strict penalties for uninsured employers, including:
- Civil fines — often thousands of dollars
- Stop-work orders
- Personal liability for medical bills and lost wages
- Potential criminal charges for willful noncompliance
The ICA does not hesitate to enforce these penalties — especially after an injury occurs.
Special Cases Arizona Employers Should Know
- 1Domestic workers. Household employees (nannies, caregivers, housekeepers) must be covered if they work regularly.
- 2Agricultural workers. Farm laborers are generally considered employees and must be covered.
- 3Volunteers. Volunteers are not required to be covered, but some organizations elect coverage for risk management.
- 4Out-of-state employers. If an employee works in Arizona, the employer must comply with Arizona workers' comp laws.
How Employers Get Coverage
Arizona employers can obtain workers' comp through:
- Private insurance carriers
- The Arizona State Compensation Fund (SCF)
- Self-insurance (only for large employers meeting strict financial criteria)
If you're unsure which category you fall into, the ICA provides guidance — but most small and mid-sized businesses use private carriers.
Bottom Line
If you have even one employee, Arizona law requires you to carry workers' compensation insurance. The only exceptions involve owners who formally reject coverage or businesses with no employees at all.
Understanding these rules protects your organization from costly penalties and ensures your workers receive the care they need if an injury occurs.
Disclaimer
The information provided is for general educational purposes only and does not constitute legal, financial, or insurance advice. Coverage details, limits, and eligibility vary by policy and carrier and your situation. No guarantee of accuracy or applicability is made, and this information may not apply to any particular individual, business, or claim. Some images and content we share are created using AI to help visualize and explain real-world insurance situations and we are not responsible for any mistakes. Content and images are designed to educate and engage, not to represent actual claims or clients and they may not apply to you or your business. Always review your specific policy documents and consult your licensed insurance agent for guidance on your situation.
