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 workers compensation insurance in Arizona only: who has to carry it, who is left out, where the policy comes from, what goes on the wall, what to file after an injury and what going uninsured costs. 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 puts it in a single sentence in its 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 law behind that sentence is in the Arizona Revised Statutes (A.R.S. for short): A.R.S. 23-902, subsection A, makes every person who employs any workers regularly employed under a contract of hire subject to the workers compensation 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. A.R.S. 23-902, subsection B applies when you bring in a contractor, keep supervision or control over the work, and the work is a part or process in your own trade or business. In that case the law treats the contractor and the contractor's employees, plus any subcontractor and their employees, as 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. In plain terms, if the work is routine for your business and you direct it, the crew is yours for workers compensation purposes.
Most accidental gaps I see are not decisions. They are lapses. Under A.R.S. 23-961, subsection F, a carrier that chooses to cancel or not renew your policy must first give both you and the Commission at least thirty days' notice, and it must notify the Commission promptly when you cancel or fail 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. The table also sorts out business owners, including members of a limited liability company (LLC), and the contractors you bring in.
| 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 labor row 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 in the usual course of a restaurant's business. 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, not on a title such as president or officer. 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. Members and shareholders below that line are already employees.
Electing 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 (an add-on to the policy), at the discretion of the insurance carrier. The carrier can say no.
If the carrier 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's actual average monthly wage at the time of injury.
Sole proprietors can also move the other way and sign coverage away. 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. The short statutory waiver is signed and dated by both the sole proprietor and the insurance carrier of the business hiring them.
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 the waiver 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. Put simply, you judge the result, not how the person gets there.
Subsection D then lets the parties sign a dated written agreement that creates a rebuttable presumption of that relationship, meaning it stands unless someone proves otherwise. The agreement has to carry a disclosure that the contractor is not entitled to workers compensation benefits from the business, plus eight specific statements about exclusivity, licensing, pay, tools, timing and separate operations.
Arizona also offers a 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. Signing one is expressly optional, and the declaration does not apply to businesses licensed as construction contractors, except for services that need no such license.
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 set up a successor mutual insurer. That insurer took over the fund's assets and liabilities by operation of law, meaning automatically.
What is left is an ordinary competitive market of licensed carriers. That 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 methods, 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 qualifying thresholds sit in the Arizona Administrative Code, at A.A.C. R20-5-1504, subsection B. That rule replaced the older R20-5-1107 in October 2022 and sets a high bar.
To qualify, an individual employer must have been in business in Arizona for at least five consecutive years before the requested start date, have annual Arizona payroll of at least $2,000,000 including covered subsidiaries, and hold total assets of at least $25,000,000 or a net worth of $5,000,000 with a cash flow ratio of at least .25.
Qualifying is only the entry test. On top of it, A.R.S. 23-961 lets the Commission require a deposit or other security of not less than $100,000 from any employer that pays its own claims.
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. 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, and the group must have existed for some other purpose first.
Every pool member is also jointly and severally liable for the liabilities of the pool, which means any one member can be made to answer for all of them.
If no carrier will write you a policy, 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. There is only one in the state, run by an administrator under contract with the Department of Insurance and Financial Institutions.
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.
What you pay for the policy moves on fewer levers than the number of carriers suggests. The National Council on Compensation Insurance files one annual rate change for Arizona, and the Department of Insurance and Financial Institutions reviews it. The reviewed filing cut workers compensation rates 6.7 percent from January 1, 2026, the twelfth consecutive annual decrease. Carriers apply their own multipliers on top of that base.
Your own premium comes from three inputs: the class codes your work falls into, the payroll you report in each, and the experience modification, a multiplier set by your claims history. Because the year-end audit recomputes premium on actual payroll, putting a working owner or a shop hand in the wrong code can swing the final bill either way.
The Poster and the Rejection Form
Arizona requires one workers compensation notice, two exposure notices hung beside it and one stack of blank forms, and the forms are the part employers miss. The notice and the forms both come from A.R.S. 23-906, and the penalty for missing either is unusual enough to be worth reading twice.
Subsection D covers the notice. Every employer must post it and keep it posted in a conspicuous place on the premises, in English and Spanish, where all workers can inspect it. You do not have to write it yourself: the Industrial Commission publishes a bilingual compliance poster that prints on one sheet and carries a blank for your policy number.
The notice tells employees three things: they are deemed to have accepted the compensation law unless they specifically reject it, they may reject it by written notice before any injury, and blank forms for that notice are available at the company office.
The two exposure notices come from Commission rule R20-5-164 rather than the statute, and both deal with workplace exposure to infectious disease. Titled "Work Exposure to Bodily Fluids" and "Work Exposure to MRSA, Spinal Meningitis, or TB," they go in a conspicuous place immediately next to the main Notice to Employees. Your carrier, claims processor or pool has to supply them, so ask for them if you do not have them.
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. Without that notice, every employee is conclusively presumed to have elected compensation, with no room to argue otherwise.
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.
Injury Reporting Deadlines
Arizona starts three clocks on the same accident, and only one of them is yours to meet. The employee reports forthwith, meaning without delay; the treating provider files within eight days; and you file within ten days of learning about it, all under A.R.S. 23-908 and the rules of the Commission.
| 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 for an individual (A.R.S. 13-802, subsection D) or up to $1,000 for an enterprise such as a corporation or LLC (A.R.S. 13-803) |
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. On your 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.
Penalties for Going Without Coverage
The penalties Arizona writes specifically for going uninsured are civil, and they are aimed at the business: a court order that closes it, a bill for everything the state pays out on the claim, and a lawsuit you have already lost most of.
Start with the lawsuit. Under A.R.S. 23-907, subsection A, 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.
That lawsuit is stacked against you. You cannot use the defenses of assumption of risk (the worker accepted a known danger) or contributory negligence (the worker was partly at fault). Proof of the injury is prima facie evidence of employer negligence, meaning it counts as proof unless you rebut it, and the burden shifts to you 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 can begin paying medical and compensation benefits while the matter is sorted out.
Subsection E of the same statute 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's 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 ask the court for an injunction ordering an employer with one or more employees to stop operating the business until it complies.
Civil penalties can come on top of that. 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. It may assess $1,000 even where the claim that exposed the gap turns out to be noncompensable, meaning not payable under workers compensation.
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.
Inadvertent has a specific meaning here. The statute defines it 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.
Behind all of this, the chapter also carries a criminal catch-all. A.R.S. 23-932 makes it a class 6 felony to knowingly fail to perform a duty the chapter imposes, or to knowingly fail to obey a Commission order or a court judgment under it, wherever no other penalty is specifically provided.
The practical next step is to confirm three things: the policy is active, the notices are on the wall, and blank rejection forms sit where you hire. Beyond that, Arizona asks more of an employer than workers compensation, from the mandatory E-Verify check to the rules on final paychecks.
The Arizona HR compliance guide is the companion to this page and pulls those other duties together.
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 brings anyone who regularly employs workers under a contract of hire into 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 you own. Sole proprietors, working partners, LLC members holding 50 percent or more and shareholders holding 50 percent or more are not employees. They may elect coverage on written acceptance by endorsement, at the discretion of the carrier, using an assumed average 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. Its rules also require two further notices on workplace exposure to infectious disease to hang immediately next to that poster.
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's 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?
Several things at once. The employee may sue at law, with assumption of risk and contributory negligence off the table and the injury itself treated as prima facie evidence of negligence. Or the employee can 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, because the paperwork alone does not settle it. 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.