Arizona Workers Compensation: Employer Rules
Arizona requires workers compensation from the first employee. Who is excluded, where to buy a policy, poster rules, injury deadlines and penalties.
Arizona Workers Compensation
Mandatory from the first employee, bought in a fully private market, with a bilingual poster, a rejection form and a ten day employer report
The most expensive assumption I have watched a small employer make in Arizona is that one part-time helper does not count. It counts. The obligation starts at the first person you employ, and the state does not care whether that person works forty hours a week or six hours on Saturdays.
Arizona then adds a piece of paperwork almost nobody expects. An Arizona employee is allowed to opt out of the whole system in writing before an injury, so every employer has to post a bilingual notice saying so and keep blank opt-out forms available where people are hired. Skip either one and your new hires keep the right to sue you instead.
This page covers Arizona only. If you want the mechanics of how the insurance works in general, our explainer on workers compensation insurance does that job and this page will not repeat it. FirstHR is an HR platform, not an insurer and not a broker, so nothing below is a quote or a recommendation of a carrier.
Who Has to Carry Coverage
Every Arizona employer with one or more employees must carry workers compensation insurance. There is no employee-count threshold to cross, no grace period for a first hire, and no part-time carve-out.
The Industrial Commission of Arizona states it in a single sentence on its employers page and repeats it in the workers compensation handbook: Arizona law requires all public and private employers to provide coverage for their employees if they employ one or more persons, full or part time. The statute behind that is A.R.S. 23-902, subsection A, which makes every person who employs any workers regularly employed under a contract of hire subject to the chapter.
The word doing the work in that statute is regularly. Arizona defines regularly employed as all employments, whether continuous throughout the year or for only a portion of the year, in the usual trade, business, profession or occupation of an employer. A landscaping crew that only runs from March to October is regularly employed. So is a retail hire kept on for a single busy quarter.
Coverage can also reach past your own payroll. Under A.R.S. 23-902, subsection B, when you procure work from a contractor over whose work you retain supervision or control, and the work is a part or process in your own trade or business, that contractor and the contractor employees, plus any subcontractor and their employees, are your employees for this chapter. The statute defines part or process as a work activity that is regular, ordinary or routine in the operation of the business.
Most accidental gaps I see are not decisions, they are lapses. A.R.S. 23-961, subsection F requires the carrier to give at least thirty days notice to both the employer and the Commission before cancelling or not renewing a policy at the carrier election, and to notify the Commission promptly when the employer cancels or fails to renew. That notice is the last warning you get before the penalties in this article start applying to you.
Who Is Excluded From Coverage
Arizona writes its exclusions as a list of people who are not employees, not as a list of small employers who are off the hook. Two exclusions sit in the statute itself: domestic servants, and work that is both casual and outside the usual course of your business.
| Category | How Arizona treats it |
|---|---|
| Domestic servants | Excluded from the chapter by A.R.S. 23-902, subsection A. An exempted employer of domestic servants may come under the chapter voluntarily by complying with its provisions and the rules of the Commission |
| Casual labor | Excluded only when the employment is both casual and not in the usual course of the trade, business or occupation of the employer (A.R.S. 23-901, paragraph 6). Both halves have to be true, so casual work inside your own trade is covered work |
| Sole proprietors | Not employees. May be deemed employees on written acceptance, by endorsement, at the discretion of the carrier, on an assumed average monthly wage of at least $600 and no more than the maximum in A.R.S. 23-1041 |
| Working partners | Same treatment as sole proprietors: outside the definition of employee, able to elect in by endorsement at the discretion of the carrier, on the same assumed wage range |
| LLC members owning 50 percent or more | Not employees by default. May elect coverage by endorsement at the discretion of the carrier, on an assumed average monthly wage of $600 or more up to the A.R.S. 23-1041 maximum |
| LLC members owning less than 50 percent | Employees under A.R.S. 23-901, paragraph 6, subdivision (q). Coverage is required, not optional |
| Corporate shareholders owning 50 percent or more | Not employees by default. Same election by endorsement at the discretion of the carrier, on the same assumed wage range |
| Corporate shareholders owning less than 50 percent | Employees under A.R.S. 23-901, paragraph 6, subdivision (s). Coverage is required |
| Agricultural and seasonal labor | No general exclusion in the statute. Work in the usual trade or business for only a portion of the year is regularly employed under A.R.S. 23-902, subsection A |
| Independent contractors | Not automatically excluded. See the definition in A.R.S. 23-902, subsection C and the written agreement in subsection D |
| Contractors you supervise | Deemed employees of the original employer when the employer retains supervision or control and the work is a part or process in that employer’s trade or business (A.R.S. 23-902, subsection B) |
| Workers under a professional employer agreement | Employees. A.R.S. 23-901, paragraph 6, subdivision (p) covers every person employed pursuant to a professional employer agreement, and 23-902, subsection A names them expressly |
Read the casual line carefully, because it has two conditions and employers usually remember one. A restaurant paying someone for three days of prep during a busy week has an employee, because prep is the usual course of a restaurant. The same restaurant paying a neighbor once to repaint the storeroom may not.
Owners, Officers and Contractors
Owner status in Arizona turns on a percentage. Sole proprietors, working partners, LLC members holding 50 percent or more and shareholders holding 50 percent or more start outside the system and can buy their way in. Everyone below that line is already an employee.
Election in is not a form you file with the state. A.R.S. 23-901, paragraph 6 says each of those owners may be deemed an employee on written acceptance, by endorsement, at the discretion of the insurance carrier. The carrier can say no. If it says yes, premium and benefits run on an assumed average monthly wage of at least $600 and no more than the maximum in A.R.S. 23-1041, and any permanent disability compensation is computed on the lesser of that assumed wage or the owner actual average monthly wage at the time of injury.
There is a mirror-image form for the other direction. Under A.R.S. 23-961, subsection N a sole proprietor performing services for another business may waive their own rights to coverage and benefits, on a short statutory waiver signed and dated by both the sole proprietor and the hiring employer carrier. The waiver text includes the line that matters most: if that sole proprietor has employees of their own, they must still insure them. A business using a sole proprietor who has signed it is not liable for coverage or premium for that person under A.R.S. 23-902, subsection E.
For everyone else the question is control. A.R.S. 23-902, subsection C defines an independent contractor as a person who is independent of the business in the execution of the work, not subject to the rule or control of the business, engaged only in a definite job or piece of work, and subordinate only in effecting a result. Subsection D then lets the parties sign a dated written agreement that creates a rebuttable presumption of that relationship, provided it carries a disclosure that the contractor is not entitled to workers compensation benefits from the business and eight specific statements about exclusivity, licensing, pay, tools, timing and separate operations.
Arizona also has an optional declaration of independent business status under A.R.S. 23-1601, which creates a rebuttable presumption across Title 23 when the contractor signs it and the hiring party behaves consistently with it. Executing one is expressly optional, and it does not apply to businesses licensed as construction contractors except for services that need no such license. Our guide to employee versus contractor status walks through the federal tests, which are separate law and do not override these.
Where Arizona Employers Buy the Policy
Arizona employers buy coverage in the private market. A.R.S. 23-961, subsection A gives exactly two lawful methods: insure with a carrier authorized by the Director of the Department of Insurance and Financial Institutions, or furnish the Industrial Commission satisfactory proof of financial ability to pay compensation directly or through an approved workers compensation pool.
Arizona no longer runs a state fund. Senate Bill 1045 of 2010 terminated the State Compensation Fund board of directors on July 1, 2012 and repealed Title 23, chapter 6, article 5 on January 1, 2013, directing the board to establish a successor mutual insurer that took the fund assets and liabilities by operation of law. What is left is an ordinary competitive market of licensed carriers, which is why quotes vary and why shopping the renewal is worth an afternoon.
One warning is written straight into the statute. A.R.S. 23-961, subsection B says an employer may not secure compensation by any mechanism other than those two, and that no insurance, combination or other program may be marketed, offered or sold as workers compensation unless it complies. Buying a substitute product is itself a violation of the chapter, not a cheaper version of compliance.
Self-insurance exists and almost certainly is not for you. The Industrial Commission publishes the qualifying thresholds on its self-insurance authority page, drawn from A.A.C. R20-5-1107, subsection B: an individual employer must have been in business in Arizona for at least five years before the initial application, have annual Arizona payroll of at least $2,000,000 including subsidiaries under the authority, and hold total assets of at least $50,000,000 or a net worth of $10,000,000 with a cash flow ratio of at least .25. On top of that, A.R.S. 23-961 lets the Commission require a deposit or other security of not less than $100,000.
Pooling is the middle path, and it is narrow. A.R.S. 23-961.01 lets two or more employers in similar industries form a workers compensation pool, but each member must have been in business for at least five consecutive years, the members combined gross workers compensation premiums for the prior year must total at least $750,000, the group must have existed for some other purpose first, and every member is jointly and severally liable for the liabilities of the pool.
If nobody will write you, the assigned risk plan is the backstop. Under A.R.S. 23-1091 an employer refused coverage by two or more insurers is placed in the plan, of which there is only one in the state, administered by a party the Department of Insurance and Financial Institutions contracts with. Placement is not automatic if you refused an insurer reasonable access to your records for audit, ignored health and safety or loss prevention requirements, owe undisputed premium, or misrepresented something on the application.
The Poster and the Rejection Form
Arizona requires one workers compensation poster and one stack of blank forms, and the forms are the part employers miss. Both duties come from A.R.S. 23-906, and the penalty for missing either is unusual enough to be worth reading twice.
Subsection D requires every employer to post and keep posted, in a conspicuous place on the premises, in English and Spanish, available for inspection by all workers, a notice telling employees that they are deemed to have accepted the compensation law unless they specifically reject it, that they may reject it by written notice before any injury, and that blank forms for that notice are available at the office of the company. The Industrial Commission publishes a bilingual compliance poster that prints on one sheet and carries a blank for your policy number.
The rejection itself is a written notice, signed and dated by the employee, given to the employer in duplicate, in substantially the form printed in subsection B. It has to reach the employer before any injury, and within five days the employer files it with the carrier. Absent that notice, every employee is conclusively presumed to have elected compensation.
Now the part that costs money. Under subsection E, if you fail to post the notice, or fail to keep the blank forms available at the place where employees are hired, then no employee who takes a job during that period is deemed to have accepted the chapter. If one of them is injured while the poster is down or the forms are missing, that employee gets to choose: file a claim, or sue you directly.
Arizona does not require a workers compensation pamphlet to be handed to each new hire, which surprises employers arriving from states that do. The duty is availability at the hiring location, so the practical answer is to put a blank rejection form in the same onboarding packet as the I-9 and the state withholding election. Our workplace safety posters checklist covers what belongs next to this notice on the wall, and our page on Arizona minimum wage covers the wage notices the same agency enforces.
Injury Reporting Deadlines
Arizona starts three clocks on the same accident, and only one of them is a number the employer controls. The employee reports forthwith, the treating provider files within eight days, and you file within ten days of learning about it.
| Step | Who acts | Deadline |
|---|---|---|
| Report the accident and the injury | Injured employee | Forthwith after the accident, to the employer (A.R.S. 23-908, subsection E). Any physician the employee engages must also report forthwith to the employer, the carrier and the Commission |
| Hand over the insurance details | Employer | Immediately on notice of an accident resulting in injury: the name and address of the carrier, the policy number and the expiration date (A.R.S. 23-908, subsection H) |
| Employer’s Report of Industrial Injury | Employer | Within 10 days after receiving notice of the accident, filed with the Industrial Commission and the carrier or third party administrator (A.R.S. 23-908, subsection G and 23-1061, subsection E) |
| Worker’s and Physician’s Report of Injury | Injured employee and treating provider | The employee completes the worker’s section and the provider completes the initial report. The Commission instructs the provider to file it within 8 days after first rendering treatment, and this filing is usually what opens the claim |
| Employer’s one medical examination | Employer | The employer may designate a physician in writing to make one examination to ascertain the character and extent of the injury (A.R.S. 23-908, subsection F) |
| Written claim for compensation | Injured employee or dependents | Filed with the Commission within one year after the injury occurred or the right accrued, the clock starting when the injury becomes manifest or the claimant reasonably should know of it (A.R.S. 23-1061, subsection A) |
| Notice of the average monthly wage | Carrier or self-insured employer | Within 30 days after paying the first installment of compensation, to the employee and the Commission (A.R.S. 23-1061, subsection F) |
| Failure to file the reports | Employer or physician | A petty offense under A.R.S. 23-908, subsection J, carrying a fine of up to $300 under A.R.S. 13-802, subsection D |
Forthwith is not a number, and that cuts both ways. If the employee or their physician does not report forthwith, A.R.S. 23-908, subsection F allows compensation to be forfeited, though the Commission may excuse the failure after investigating the circumstances. From the employer side, write the date and time you were told on the incident record, because that date is what starts your own ten day clock.
What to Do When Someone Gets Hurt
The order matters, and the first two steps happen before anyone thinks about paperwork. Care for the person, hand over your insurance details, then create the record and file the report.
Records that live in one place are the reason we built FirstHR, and the same instinct applies to the federal log running alongside an Arizona claim: our guide to OSHA forms 300 and 301 covers what has to be written down separately from the state paperwork.
Penalties for Going Without Coverage
Arizona enforcement is civil, and it is aimed at the business rather than at the owner liberty. There is no jail term for going uninsured. There is a court order that closes the business, a bill for everything the state pays out on the claim, and a lawsuit you have already lost most of.
Start with the lawsuit. A.R.S. 23-907, subsection A says an employer subject to the chapter who fails to comply gets none of its benefits during the period of noncompliance and is liable in an action under any other applicable law. In that action the employer cannot use the defenses of assumption of risk or contributory negligence, proof of the injury is prima facie evidence of employer negligence, and the burden shifts to the employer to show freedom from negligence.
The injured worker does not have to sue, though. Subsection B lets the employee file with the Commission instead, and the special fund created by A.R.S. 23-1065 begins paying medical and compensation benefits while the matter is sorted out. Subsection E then sends the bill to the employer: the amount the fund spent, plus a penalty of ten percent of that amount or $1,000, whichever is greater, plus interest. The award is filed with the clerk of the superior court and becomes a lien on the employer property in that county for eight years, and the Commission may recover its attorney fees.
Then the doors can close. Subsection F of A.R.S. 23-907 lets the Commission apply to the court for an injunction causing an employer with one or more employees to cease the operation of business until it complies. Separately, the Commission may assess a civil penalty of up to $1,000 on an uninsured employer, up to $5,000 for a second failure within five years, and up to $10,000 for a third or subsequent one, and it may assess $1,000 even where the claim that exposed the gap turns out to be noncompensable.
There is real room to argue the penalty down, which is worth knowing if you are reading this after a lapse rather than before one. Subsection K lets the Commission weigh the history of noncompliance, the absence of claims, whether the failure was inadvertent, and whether you were the victim of fraud or gross negligence by an agent or broker. The statute defines inadvertent to include a lapse of not more than thirty days caused by a change of carrier, a change of ownership or a change in the form of the business.
For everything else Arizona asks of an employer, from the mandatory E-Verify check to final paychecks, the Arizona HR compliance guide is the companion to this page, and the rest of the state pages live in the Arizona compliance hub.
Frequently Asked Questions
Does an Arizona business with one employee need workers compensation insurance?
Yes. Arizona sets no headcount threshold. The Industrial Commission states that all public and private employers must provide coverage if they employ one or more persons, full or part time, and A.R.S. 23-902, subsection A makes every person who employs any workers regularly employed under a contract of hire subject to the chapter. Regularly employed covers work for only a portion of the year, so seasonal hires count.
Can an Arizona business owner leave themselves off the policy?
It depends on the percentage. Sole proprietors, working partners, LLC members holding 50 percent or more and shareholders holding 50 percent or more are not employees and may elect coverage on written acceptance by endorsement, at the discretion of the carrier, using an assumed monthly wage of at least $600. Members and shareholders below 50 percent are employees, so leaving them off the policy is not an option.
Where do Arizona employers buy workers compensation coverage?
In the private market. A.R.S. 23-961 allows insuring with a carrier authorized by the Department of Insurance and Financial Institutions, or proving to the Industrial Commission that you can pay claims directly or through an approved pool. The old State Compensation Fund was converted into a successor mutual insurer and the article creating it was repealed on January 1, 2013, so there is no state fund selling policies today.
What workers compensation poster does an Arizona employer have to display?
The bilingual notice described in A.R.S. 23-906, subsection D, posted in a conspicuous place and available for inspection by all workers. It tells employees they are deemed to accept the compensation law unless they reject it in writing before an injury, and that blank rejection forms are available at the company office. The Industrial Commission publishes a one page compliance poster with a field for your policy number.
How fast must an Arizona employer report a work injury?
Within ten days of receiving notice of the accident, to both the Industrial Commission and the carrier, under A.R.S. 23-908, subsection G. The employee side is not a fixed number: the statute says the employee shall report the accident forthwith. Immediately on notice you also owe the employee your carrier name and address, policy number and expiration date, and failing to comply with the section is a petty offense.
What happens to an Arizona employer caught without coverage?
The employee may sue at law with assumption of risk and contributory negligence off the table and the injury itself treated as prima facie negligence, or file with the Commission so the special fund pays and bills you for the full amount plus ten percent or $1,000, whichever is greater, plus interest, enforceable as an eight year lien. Civil penalties run to $1,000, then $5,000 and $10,000 for repeats within five years, and a court can order the business closed until you comply.
Do independent contractors have to be covered in Arizona?
Sometimes. A signed agreement under A.R.S. 23-902, subsection D creates only a rebuttable presumption, and it is void if consent came through misrepresentation, fraud, coercion or duress. Subsection B is the bigger trap: when you retain supervision or control over contract work that is a regular, ordinary or routine part of your own business, that contractor and their employees count as your employees for this chapter.