Each state has it's own set of rules, penalties, and fines for failing to get worker's compensation insurance if you have employees. Often, the penalties are so high, that a company could be put out of business. I don't think from my experience that a state will hit a company hard enough to force them to close their doors if they acted in good faith, but you never want to find out how much pain they can inflict.
As you can read below, all employees can use the worker's compensation system, but how the employer funds it can be a material factor. It's much better to pay the premium and stay ahead of the game than to pay the medical bills and the penalties.
In addition to other liability, an uninsured employer may also be fined by the department for failing to insure employees, regardless of whether an injury has occurred. The employer may be ordered to provide the necessary insurance coverage, to refrain from employing any person at any time without insuring the employee and to pay a penalty of up to $1,000 per employee per week during the time the employee was not insured.
Other penalties and consequences
An employer has 10 days to comply with or contest a department order concerning insurance coverage. If an objection is not received by the commissioner, the order is considered final and cannot be appealed. If the employer contests the order, the matter will be referred to a workers' compensation judge for a decision as to whether the fine or other terms of the order are justified. If the employer loses, the judge may order the employer to pay additional penalties if uninsured people were employed while the case was pending.
Injured employee, no employer coverage
If an employee suffers a compensable injury and the employer has not purchased insurance coverage or followed the proper procedures for self-insurance, the employee may request the state Special Compensation Fund pay the appropriate benefits. A compensation judge will first determine whether the employer is liable for the worker's injury and, if appropriate, order the Special Compensation Fund to pay all appropriate compensation benefits to the employee and order the employer to reimburse the Special Compensation Fund along with a penalty in the amount of 65 percent of those benefits.