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When is Worker's Compensation Insurance Required in Illinois?

Article written by Illinois & Iowa Attorney Kevin O'Flaherty
Updated on
November 1, 2019

In this article, we will explain when Illinois employers are required to carry workers' compensation insurance. 

When is there an Employer/Employee Relationship for Workers' Compensation Purposes in Illinois?

Under the Illinois Workers’ Compensation Act (“IWCA”), an employer/employee relationship is a requisite element of any successful workers’ compensation claim. Insurance coverage is required in nearly every field of work and must be carried by most employers, even those with only one employee.

Who is an “employer” for Workers' Compensation Purposes in Illinois?

The IWCA defines “employer” as the following:

  • The State, each county, city, town, township, incorporated village, school district, body politic, or municipal corporation
  • Every person, firm, public or private corporation who has any person in service or under any contract for hire
  • Any one engaging in any business or enterprise who undertakes to do any work enumerated in the IWC.

Who is an “employee” for Workers' Compensation Purposes in Illinois?

The IWCA defines “employee” as the following:

  • Every person in the service of the State (or other governmental entity);
  • Any person employed by a contractor who has contracted with the State (or other governmental entity).


There is an exception specifically made in the Act which expressly excludes any person performing services as real estate broker, broker-salesman, or salesman when such persons are paid by commission only from the definition of “employee.” Therefore, people fitting this category are likely not to succeed on a workers’ compensation claim.

When Is Workers' Compensation Insurance Coverage Necessary in Illinois?

Workers Compensation Insurance Law Explained

Section 2 of the Act allows for certain employers to elect to provide compensation for work-related injuries or not to provide any compensation. The clear advantage for employers to providing compensation for work-related injuries is to relieve themselves from any liability for the recovery of damages.

However, Section 3 automatically applies the provisions of the Act to ALL employers and employees employed in a field deemed to be “extra hazardous.” 820 ILCS 305/3.

While the Act enumerates multiple fields of work deemed “extra hazardous,” here a few examples:

  • Construction, excavation, or electrical work
  • Demolition work
  • Operating a warehouse
  • Any enterprise in which explosive materials are used in dangerous quantities
  • Any enterprise using sharp-edged cutting tools, grinders, or the like
  • Any business in which electric, gasoline, or other power driven equipment is used

Coverage begins for a new employee starting from the moment they are hired. There are no waiting periods.

Does an Out-of-State employer have to provide Illinois workers’ compensation insurance if they have an Employee in Illinois?

The short answer to this question is "yes," if the out-of-state employer has an employee in Illinois. Illinois law requires coverage for employees (1) injured in Illinois resulting from employment, (2) whose work is principally located in Illinois; or (3) whose employment contract was entered into in Illinois.

Regardless of whether the company is located in New York and all of its employees are also in New York, if the company has an employee who goes to Illinois to perform any work at all, the company must provide workers’ compensation insurance that includes Illinois coverage.

I’m an Employer, Can I simply not obtain Workers' Compensation Insurance?

Yes, you can ignore insurance coverage, even if it’s required by the Act, but see below for the stiff penalties you may risk facing.

What Happens if an Employer Does Not Have Workers' Compensation Insurance?

When is Workers Comp required for illinois business?

Section 4(d) of the Act sets penalties for employers who knowingly and willfully fail to obtain insurance. In such scenarios, the employer can be fined up to $500 per day for every day they are not compliant with the Act, with a minimum fine of $10,000. The penalties are greater for officers of a corporation.

For corporations, officers can be held personally liable for the corporations failure to pay a penalty under the Act. Additionally, if a corporate officer is found to have negligently or knowingly failed to obtain insurance, they can be found guilty of a Class A misdemeanor or Class 4 felony, respectively.

How to Obtain Workers' Compensation Coverage

Employers can obtain coverage either through private insurance companies or self-insure. The vast majority of companies buy insurance policies through private companies. The National Council of Compensation Insurance is a good starting place for new employers seeking workers’ compensation coverage.

A private employer can apply for self-insurance. To apply for self-insurance, the applying employer must show, among other things, sufficient financial strength to meet the IWCC’s rules. Commission Rules, Section 7100.70. With self-insurance, it is the employer’s responsibility to re-apply for insurance every year and must continue to demonstrate financial strength as evidenced by the production of interim financial statements.

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Who is an “employer” for Workers' Compensation Purposes in Illinois?

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