Workers Compensation Requirements

Workers compensation requirements in federal contracting reflect both federal statutory mandates and the state-level insurance frameworks that most non-maritime employer obligations flow through. Federal contractors must understand which legal regime applies to their workforce because the coverage requirements, insurance mechanisms, and liability exposure differ significantly depending on the nature of the work and where it is performed. Failing to carry required coverage is not merely an administrative violation - it can constitute grounds for contract termination and debarment.

What are workers compensation requirements?

For most federal contract employees performing work on land, workers compensation coverage is governed by the workers compensation law of the state where the work is performed. FAR 28.307-2 requires contractors to provide and maintain workers compensation insurance as required by applicable state law. The contracting officer verifies coverage through the insurance certificates submitted under FAR 52.228-3 (Workers' Compensation Insurance) or FAR 52.228-4 (Workers' Compensation and War-Hazard Insurance Overseas).

For employees performing maritime work - including work on navigable waters, in shipyards, on docks, and in certain harbor-adjacent locations - the Longshore and Harbor Workers' Compensation Act (LHWCA), 33 U.S.C. 901 et seq., provides a federal workers compensation framework administered by the Department of Labor's Office of Workers' Compensation Programs (OWCP). Contractors performing ship repair, shipbuilding, or harbor construction on federal contracts must carry LHWCA coverage in addition to, or instead of, state coverage depending on the specific work location and employee activities.

A further overlay applies to contractors working in designated war-hazard zones. The Defense Base Act (DBA), 42 U.S.C. 1651 et seq., extends LHWCA coverage to contractor employees working outside the United States under contracts with the U.S. government, including employees working on military bases abroad. DBA coverage is mandatory for covered contractors and is typically funded through the contract. FAR 52.228-4 addresses the contractual requirement.

Why it matters for contractors

Workers compensation compliance affects contractors in three direct ways. First, states and the federal government impose significant penalties for failure to maintain coverage, and an injury to an uninsured employee creates direct employer liability that can be financially catastrophic for a small or mid-size firm. Second, insurers providing workers compensation policies for federal contractors must be listed on the Treasury Department's approved surety list if the policy is being furnished as evidence of insurance under a federal contract, though this requirement does not apply to self-insurance arrangements approved by the relevant state or federal authority. Third, the DBA adds a cost line to overseas contract bids that is easy to underestimate - insurance premiums for war-hazard zones can be substantial, and pricing a contract without DBA coverage included is a common cost-growth driver for firms new to overseas work.

Contractors should identify the applicable workers compensation regime during the solicitation review phase, obtain proper coverage before contract performance begins, and submit evidence of insurance on time to avoid cure notices.

Example

A facilities management firm wins a contract to maintain a U.S. Navy base in Bahrain. Because the work is performed outside the United States under a U.S. government contract, the Defense Base Act applies. The contractor obtains DBA insurance through a carrier approved for such coverage, includes the premium cost in its indirect cost rate, and submits the insurance certificate to the contracting officer within the timeframe specified in FAR 52.228-4 before personnel deploy to the site.