Colorado requires workers’ compensation coverage for virtually every business with at least one employee — including part-time workers. Here is what Denver business owners need to know about the law, the costs, and the consequences of going without it.
Colorado’s Workers’ Compensation Act (C.R.S. § 8-40-101 et seq.) requires every employer in the state to carry workers’ compensation insurance if they have one or more employees — full-time, part-time, or seasonal. There is no minimum hours threshold. There is no minimum payroll threshold. If someone works for you and receives compensation, Colorado law almost certainly requires you to carry coverage for them.
This surprises many small business owners who assume the requirement only kicks in at five or ten employees, as it does in some other states. Colorado’s threshold is among the strictest in the country, and the Division of Workers’ Compensation enforces it actively.
The definition of “employee” under Colorado workers’ comp law is broad. It includes full-time workers, part-time workers, temporary workers, and in many cases workers you might classify as independent contractors. Colorado courts look at the economic reality of the working relationship — not just the label on a contract — when determining whether someone is an employee for workers’ comp purposes.
Misclassifying an employee as an independent contractor to avoid coverage is one of the most common — and most costly — mistakes Denver business owners make. If a worker is injured and the Division determines they were actually an employee, the business owner can be held personally liable for all medical costs and lost wages, plus penalties.
Key rule: If you pay someone to do work for your business on a regular basis and you control how that work is done, Colorado law likely considers them an employee — regardless of what your contract says.
There are a limited number of exemptions under Colorado law. Sole proprietors with no employees are not required to carry coverage for themselves, though they may elect to do so. Partners in a general partnership and members of an LLC are also generally exempt for themselves — but not for any employees they hire.
Corporate officers of a corporation may elect to be excluded from coverage if they own at least 10% of the corporation’s stock, but this election must be made in writing and filed with the insurance carrier. Casual workers — defined as workers hired for tasks not in the usual course of the employer’s business, for a period of fewer than five days, and for less than $2,000 in compensation — may also be exempt.
Workers’ compensation insurance covers two main categories of loss when an employee is injured or becomes ill as a result of their job. First, it covers medical expenses — emergency treatment, surgery, hospitalization, physical therapy, prescription medications, and any other reasonable and necessary medical care related to the work injury. Second, it covers a portion of the employee’s lost wages during the period they are unable to work, typically calculated as two-thirds of their average weekly wage up to a state-set maximum.
Workers’ comp also covers permanent disability benefits if the injury results in a lasting impairment, and death benefits — including funeral expenses and ongoing payments to dependents — if a worker dies as a result of a work-related injury or illness.
In exchange for this coverage, employees generally give up the right to sue their employer for negligence in connection with the injury. This “exclusive remedy” protection is one of the most valuable aspects of workers’ comp for business owners: it limits your exposure to a defined benefit structure rather than open-ended civil liability.
Workers’ compensation premiums in Colorado are calculated based on your industry classification code, your total payroll, and your claims history. The base rate is set per $100 of payroll and varies significantly by industry.
As a rough benchmark: office-based businesses typically pay $0.30–$1.00 per $100 of payroll. Retail and service businesses might pay $1.00–$3.00. Construction, roofing, and other high-risk trades can pay $5.00–$20.00 or more per $100 of payroll.
For a small office-based business with $200,000 in annual payroll, workers’ comp might cost $600–$2,000 per year. For a small construction company with the same payroll, it could be $10,000–$40,000. Your actual rate will also be adjusted by an experience modification factor (“e-mod”) based on your claims history.
Tip: The single most effective way to reduce your workers’ comp premium over time is to invest in workplace safety. Fewer claims mean a lower e-mod, which compounds into meaningful savings year after year.
Operating without required workers’ compensation coverage in Colorado is a serious violation with significant consequences. The Colorado Division of Workers’ Compensation can issue a stop-work order, shutting down your business operations until coverage is obtained. You can be fined $500 per day for each day you operated without coverage. And if an employee is injured while you are uninsured, you are personally liable for all medical costs, lost wages, disability benefits, and death benefits — with no cap.
Beyond the financial penalties, operating without workers’ comp can expose you to civil lawsuits from injured workers, since the exclusive remedy protection that normally shields employers only applies when coverage is in place. A single serious workplace injury — a fall, a back injury, a repetitive stress claim — can easily exceed $100,000 in medical and wage costs. For a small business, that can be existential.
Most Colorado businesses obtain workers’ compensation coverage through a private insurance carrier. Rates and coverage terms vary between carriers, so working with an independent or multi-carrier agent — rather than going directly to a single insurer — can help you find the most competitive rate for your specific industry and payroll.
If your business has been declined by private carriers due to high risk or claims history, Colorado also has an assigned risk pool — the Colorado Compensation Insurance Authority (CCIA) — that provides coverage as a last resort.
At Amador Insurance, we help Denver and Aurora business owners get workers’ compensation coverage quickly — often with same-day or next-day effective dates when needed. Call (303) 535-1611 to get started.
A sole proprietor with no employees is not required to carry workers’ compensation insurance in Colorado. However, if you hire even one employee — full-time, part-time, or seasonal — you are required to obtain coverage. Sole proprietors may also voluntarily elect to cover themselves, which can be beneficial if you work in a high-risk trade.
True independent contractors are generally not covered under your workers’ compensation policy. However, Colorado law looks at the actual working relationship — not just the contract label — to determine whether someone is an employee or a contractor. If the Division determines that someone you classified as a contractor was actually an employee, you can be held liable for their injuries.
Workers’ comp premiums are calculated per $100 of payroll and vary by industry. Office-based businesses typically pay $0.30–$1.00 per $100 of payroll. Retail and service businesses might pay $1.00–$3.00. Construction and high-risk trades can pay $5.00–$20.00 or more. A small office business with $200,000 in payroll might pay $600–$2,000 per year; a small construction company with the same payroll could pay $10,000–$40,000.
A stop-work order is an enforcement action issued by the Colorado Division of Workers’ Compensation that requires a business to immediately cease all operations until it obtains the required coverage. Stop-work orders can be issued at any time — including during an active job site inspection. The Division can also fine the business $500 per day for each day it operated without coverage.
Yes. In many cases, workers’ compensation coverage can be bound and effective the same day or the next business day, particularly for lower-risk industries. If you have received a stop-work order or need to start a job that requires proof of coverage, call Amador Insurance at (303) 535-1611 and we will work to get you covered as quickly as possible.
Get a workers’ compensation insurance quote for your Denver or Aurora business. We work with multiple carriers to find the right coverage at the right price.
Get a Business Insurance Quote