The Small Business Guide to Workers' Compensation in Arizona

For Arizona business owners, workers’ compensation insurance is one of the costs of doing business. It’s required by law for most businesses, except those that are large enough to self-insure. 

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Workers’ comp protects both employees and employers in the case of a workplace injury or illness. It pays for medical costs and a portion of an employee’s lost wages following an accident. Meanwhile, it protects employers from costly lawsuits.

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To help you understand everything you need to know about it, let’s dive deeper into Arizona workers’ compensation insurance.

How Does Workers’ Comp Work in Arizona?

In Arizona, workers’ comp provides employees with 66 percent of their average monthly wage if they get sick or injured on the job, to a maximum of $4,741.57 a month. The insurance also pays for their medical bills so they can recover. Here’s a full list of what workers’ comp can cover in the state:

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• Cost for all medical treatments needed for the injury, including rehabilitation costs
• Disability benefits, either temporary or permanent
• A portion of an employee's lost wages—in Arizona, the amount they receive is 66 percent of their average monthly wage
• Death benefits for the family if an employee is killed on the job

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Arizona uses a “no-fault” system, which means that, in most cases, it doesn’t matter who or what was the cause of the accident.

Do All Businesses Need Workers’ Comp in Arizona?

All businesses with one or more employees, whether they are employed full-time or part-time, need to carry workers’ comp insurance coverage in Arizona. 

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You do not need to have this coverage if you are an independent contractor or sole proprietor with no employees. But remember that without it, you would not have access to comp benefits if you were injured on the job.

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Even if you are working on your own, you might still find yourself with a job-related accident. In that case, medical expenses could be financially devastating for you and your dependents. If you were to face a permanent disability, a policy could be vital in ensuring your future.

Do I Need Workers’ Comp for Subcontractors?

If you are a business owner who regularly works with subcontractors, you are not required by law to have workers’ comp insurance for them. In some cases, however, you might have a client who requires it.

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This is sometimes the case for construction firms that are working on larger projects. They may hire subcontractors—electricians, plumbers, drywallers, and more—who are independent contractors. 

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If the client requires workers’ compensation coverage for all those involved in the project, the contractor may need to purchase coverage for the subs specific to the time they’ll be on the job.

How Do I Apply for Workers’ Compensation in Arizona?

The easiest way to get workers’ comp in Arizona is to talk to your insurance agent or broker. As a business owner, you probably already have other policies, such as liability or a business owners policy. The agent you worked with when you bought those policies may also be able to help you with workers’ compensation coverage. If you are happy with them, it makes sense to stay with them for all your insurance needs.

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The second way is to purchase a policy from Arizona’s state fund. The State Compensation Fund (SCF) of Arizona offers policies to all businesses in the state as long as they can pay their premiums and have not been convicted of insurance fraud. This fund is considered the last resort for companies that are unable to buy a policy from a private insurer because it can be more expensive.

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One other option for purchasing insurance exists in Arizona but is limited to larger companies. If you have an annual payroll of at least $2 million, you can apply to the ICA to become self-insured. This means you agree that you’ll pay out on claims from internal funding, rather than through a policy with a third-party insurer.

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If you are looking for a way to simplify the insurance process, a good source of support for small businesses is Hourly. Hourly’s easy-to-use app eliminates guesswork by paying your workers’ comp premiums based on real-time payroll numbers, rather than estimates. If you’re a small business owner, it’s easy to set up a free demonstration to find out more.

Can I Be Sued by an Employee if I Have Workers’ Comp Insurance in Arizona?

In most cases, you can’t be sued by an employee if you have workers’ comp in Arizona. That’s why this coverage is said to protect both the employee and the employer, since a lawsuit against an employer might be catastrophic to their small business.

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However, there are a few exceptions in Arizona:

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• If an employee rejects workers’ compensation coverage when offered to them prior to their injury, they have the right to bring a personal injury lawsuit against their employer. This route is pretty risky, however, and rarely used. Employers are required to have rejection sheets available in both English and Spanish. 
• If an employer fails to post a notice in a public spot that notifies employees that workers’ comp can be rejected, the employee may still be able to file a civil suit in Arizona. The notice needs to be placed in an area that is easily accessible by all staff, such as a lunch or break room. Not doing so is considered negligence on the part of the employer.
• If an employee is injured due to the “willful misconduct” of the employer or a fellow employee, the injured person can file a suit against the person or persons who injured them. Willful misconduct is when an employer or employee commits an act that is deliberately intended to hurt someone—for example, if an employee pushes a fellow worker into the path of moving machinery because they are angry with them.
• If the employer does not have workers’ comp at all, employees are able to file civil lawsuits in the event of an injury.

What Should Arizona Employers Do if They Have an Injured Worker?

If you have an injured employee, and their injury happened at work or was caused by their work, you should report the injury to your workers’ compensation insurance carrier and the Industrial Commission of Arizona (ICA). 

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As an employer, you are required by Arizona workers’ compensation law to do this within ten days of when you first learn about the accident. You will need to provide your policy number as well as detailed information on the injury.

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The injured worker, meanwhile, has a year from the date of the injury or from the date at which they became aware of the injury to file a report with the claims division of the ICA and your insurance carrier. 

Employee FAQ: What Your Workers Should Know

How do I file workers’ compensation claims in Arizona?

If you are injured on the job, you are required to file a claim with the ICA within a year of the injury. They oversee all workers’ comp claims in Arizona and will notify your employer’s insurance company. You file your claim either with a Worker’s and Physician’s Report of Injury, given to you by your doctor or by downloading the Worker’s Report of Injury from the ICA website. You should also be sure your supervisor knows about your injury within 90 days since they will also need to file an employer’s report with the ICA.

How much does a worker have to be hurt for workers’ compensation in AZ?

Any injury that you receive while working should be reported. This may also include pre-existing conditions that are made worse through your job activities. For example, if you have tendonitis and your work in a machine shop has aggravated it, you may be eligible for workers’ compensation benefits.

What is the maximum amount of compensation in Arizona?

Workers’ compensation payouts vary greatly depending on the circumstances of the injury and other factors. Currently, the maximum amount you may receive in a month to replace your lost salary is $4,741.57 if you are on temporary or permanent disability. You may receive less, however, depending on your average salary. You will also receive compensation for medical costs and treatments following a work-related injury, with the possibility of permanent compensation if your injury persists.

What happens if I’m injured and my employer doesn’t have workers’ comp insurance?

If this is the case, you may be able to file a civil suit against your employer. It’s a good idea to hire a workers’ compensation attorney if you choose to do so and follow their legal advice. If you choose not to sue, filing a claim with the ICA is still possible. The ICA manages a special fund that will process your claim and pay medical benefits and other costs. The special fund will seek reimbursement from the employer, and there may also be other financial penalties for them.

What is the waiting period for workers’ compensation in AZ?

Once you have notified the ICA of your injury, you should receive a letter from them within 14 days indicating that they have notified the insurance carrier of your claim of a workplace injury. When the insurer is aware of the claim, they are required by law to either accept or deny the claim within 21 days. If your claim is denied, you have 90 days from when you receive the denial to protest the decision and request a hearing.

What is the definition of "injured on the job"?

Injured on the job means you were hurt while working for your employer. Injuries can range from a back injury caused by lifting heavy boxes to lung damage from inhaling dangerous chemicals. It could be a sudden accident, like slipping and falling on a wet floor, or it might be something that you become aware of over time. Mental health issues may also be covered by workers’ comp, although these are harder to prove.

Avoid Civil Suits and Protect Your Employees with Workers’ Comp

No matter where your Arizona business is located, from Phoenix to Tucson, it’s clear that you’ll benefit from a robust workers’ comp policy. Good coverage means you are protecting your business’s bottom line and ensuring your employees are covered if they get sick or hurt on the job.

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Your next step? If you don’t have workers’ comp, call your insurance agent or broker to find out about the best policy for your needs. If you do have a policy, it’s a good idea to review it with your broker annually to ensure that it’s still the right policy for you.