Yes, for the majority of American businesses. In most cases, workers' compensation insurance is mandatory. While state-specific workers' compensation rules differ, small firms are usually required to have a policy in place as soon as they recruit their first employee.

Even when not required by law, this policy offers significant defense against medical costs and employee lawsuits resulting from workplace accidents. For example, you can rely on workers' compensation if an employee suffers an injury and needs medical attention or time off or if the employee sues you for negligence in failing to prevent the accident.

Your company will be liable for any medical costs and attorney fees if you don't have workers' compensation. And the majority of states impose steep fines for noncompliance.