Going without workers' compensation costs $1,000 per employee per week

By David J.S. Madgett

Minnesota attorney, license no. 390494 · Published August 7, 2026

Of all the ways a new Minnesota employer can get into serious trouble cheaply, this is the fastest.

Minn. Stat. § 176.181, subd. 2:

Every employer, except the state and its municipal subdivisions, liable under this chapter to pay compensation shall insure payment of compensation with some insurance carrier authorized to insure workers’ compensation liability in this state, or obtain a written order from the commissioner of commerce exempting the employer from insuring liability for compensation and permitting self-insurance of the liability.

Insure, or get written permission to self-insure. There is no third option and no small-employer carve-out in that sentence.

The penalty is per employee, per week

This is the number that turns a paperwork lapse into a business-ending event. The civil penalty runs up to $1,000 per employee per week during which the employer was not in compliance.

Work the arithmetic on a small operation. Six employees, uninsured for a year:

6 employees × $1,000 × 52 weeks = $312,000

That is the ceiling rather than the automatic figure, but the structure is what matters — the exposure compounds with both headcount and time, and a business that let coverage lapse quietly eighteen months ago is looking at a number with no relationship to what the premium would have been.

On top of that, an employer “willfully and intentionally failing to comply with the provisions of subdivision 2 is guilty of a gross misdemeanor.”

And that is before the claim itself

The penalty is separate from what happens when someone actually gets hurt. An uninsured employer does not simply pay the penalty — it faces the injured worker’s compensation claim directly, without an insurer standing behind it. Medical costs and wage-loss benefits for a serious injury dwarf any civil penalty.

Where new businesses get caught

Assuming the first hire does not count. The obligation attaches to being an employer liable under chapter 176, not to reaching some headcount.

Misclassifying workers as contractors. This is the big one. If you treat a crew as independent contractors and the classification does not hold, you were an uninsured employer the entire time — and Minnesota’s tests are strict. In construction, § 181.723 requires all fourteen conditions to be met, and one of them is literally that the contractor carries their own workers’ compensation coverage. Outside construction, § 181.722 carries its own penalties.

Letting a policy lapse. A missed premium, a changed payroll provider, an audit adjustment. Coverage stops on a date; the obligation does not.

Growing into it. Adding a first employee to what had been an owner-only business is exactly the moment this gets overlooked, because nothing in the hiring process prompts it.

What to do

• Get a quote before the first hire, not after. It is generally not expensive for low-risk work, and the quote itself will tell you how the carrier classifies your business.
• Confirm coverage is actually in force — a quote is not a policy and an application is not a binder.
• Calendar the renewal and treat a lapse notice as urgent, because the penalty clock runs weekly.
• Collect certificates from every subcontractor and keep them. If a sub is uninsured, their injury can land on you.
• Re-examine any contractor classification you are relying on. That is where the uninsured-employer problem usually originates, and it is discovered at the worst possible moment — after someone is hurt.