Workers Compensation Insurance for an LLC: Who Must Carry It

Workers compensation insurance for an LLC is usually required by state law once the LLC has employees, and usually not required for a single-member LLC with no employees. The harder question is the owners. Depending on your state, working LLC members can count as employees unless they formally opt out, so the real answer depends on where you work, who works with you, and what your clients' contracts demand.

Do I need workers' comp if it's just me in my LLC?

Usually not. Insureon's guide to LLC workers' comp requirements says a single-member LLC with no employees would not need the coverage under the law, though the same guide stresses that the answer still depends on your state's workers' comp law. That covers a lot of home-based owners: the bookkeeper working from a spare bedroom, the candle maker shipping orders from the garage, the solo mobile groomer.

Not required isn't the same as not useful. Workers' comp pays medical bills and lost wages for work injuries. If you're the only worker and you slip carrying inventory down the basement stairs, there's no policy paying you unless you chose to cover yourself. Before you decide to skip it, check how your health plan handles a work injury and whether you have any disability coverage.

Construction work and a few states change the picture, even for small LLCs. Those rules show up below.

What changes when I hire my first helper?

A lot. Insureon puts it plainly: if your LLC has any employees, it needs a workers' comp policy. The U.S. Small Business Administration lists workers' comp among the coverage businesses with employees must carry and sends owners to their state's rules, because laws requiring insurance vary by state.

Some states set a headcount trigger. According to Insureon's exemption guide, Florida requires coverage when a non-construction business has four or more employees, full or part time, and when a construction business has even one. Tennessee requires it at five or more employees, or at one or more for construction businesses. Texas sits at the other end. The Texas Department of Insurance says private employers can choose to carry workers' comp, but it's not required in most cases.

Watch the people you don't think of as employees. A relative who helps pack orders on weekends, or a helper you pay in cash on a busy job, may count under your state's law. Calling someone a 1099 contractor doesn't settle it either. If you're unsure, the guide on independent contractor workers compensation insurance walks through how that line usually gets drawn.

Does my LLC have to cover me and my co-owners?

This is where LLCs differ from sole proprietorships, and where most mix-ups happen. In many states, members who work in the business are treated as employees of the LLC unless they file to be excluded. In others, members are left out unless they choose to be covered. The details can turn on ownership share, whether the LLC is member-managed or manager-managed, and if the work counts as construction.

Here's how the rules look in states where the source material spells them out. Treat this as a starting point and confirm with your state agency, since the rules change.

Washington's Department of Labor & Industries is a good example of how specific this gets. If your LLC has no managers, members are generally excluded. If it does have managers, only manager-members with substantial control (people who can sign contracts and buy or sell property for the LLC) can be excluded, and any member or manager who isn't excluded means you must set up a workers' comp account. Florida's exemption numbers come from the state's Division of Workers' Compensation and its exemption eligibility presentation. The New York and California rows come from The Hartford's exemption overview, and the Tennessee row from Insureon.

If you work in construction in California, read the state-specific rules in CA contractors insurance requirements before you rely on any owner exclusion.

If I opt out, what am I giving up?

You're giving up your own benefits, and you're not buying anything. Florida's own materials say it directly: once an exemption is issued, the officer or member is not considered an employee and may not recover workers' comp benefits, and an exemption does not provide insurance coverage. If you get hurt on a job, you're relying on your health insurance and savings.

Florida's process also shows the paperwork involved. The LLC must be registered and active with the state, and the applicant must certify completing an online workers' comp tutorial before applying. In construction, each member files a separate application, and the state won't grant one to someone tied to an active stop-work order. Exemptions also expire and need renewing, so put the date on your calendar the day it's approved.

An owner exemption covers only that owner. It does nothing for your employees. If you exempt yourself and still have a crew, your state's rules for covering them still apply. In Texas, going without coverage has its own trade-offs. TDI notes that carrying coverage limits your liability if an employee sues, except when gross negligence results in a fatality. Non-subscribers lose that protection and still have to report work injuries that cause more than one day of lost time.

Why would a client still ask for my workers' comp certificate?

Because clients carry their own risk. General contractors, property managers, offices that hire cleaners and event venues often ask every vendor for a certificate of insurance, a one-page summary showing the policy is active. If one of your workers gets hurt on their site and you have no coverage, they worry the claim lands on them or their insurer. Some contracts require a workers' comp certificate even from owner-only LLCs that the state doesn't require to carry it.

A state exemption certificate sometimes satisfies the client and sometimes doesn't. Read the insurance section of the contract before you bid, not after you've won the job. If the client insists on a policy, Insureon notes that some single-owner LLCs may qualify for what's called a ghost policy, a bare-bones workers' comp policy that usually covers no actual workers and mainly exists so you can hand over a certificate. Ask an agent what it covers in your state, because the name tells you nothing about the terms.

How is the premium figured for a small LLC?

Workers' comp premiums are mostly driven by payroll and job type. Each kind of work gets a classification, and riskier work, like roofing or tree trimming, costs more per dollar of payroll than office or clerical work. Your state, your claims history and whether owners are included on the policy also move the price.

That last point matters for LLCs. If working members are covered, their pay (or a set amount the insurer uses for owners) usually goes into the payroll figure. If they're excluded, it usually doesn't. Many policies also get an audit after the term ends, comparing the payroll you estimated with what you actually paid, so a busy year can mean an extra bill. Give the insurer honest numbers at the start and keep payroll records clean.

Workers' comp doesn't cover customer injuries or property damage. Those need liability coverage, and insurance for an LLC company lays out which policies fit which setup.

What should I ask an agent before I buy or file an exemption?

Start with your state's workers' comp agency, then bring these questions to a licensed agent:

• Do working LLC members count as employees in my state, and does my management structure (member-managed or manager-managed) change that?
• What ownership share do I need to exclude myself, and how many members can be excluded?
• Is my work classified as construction for workers' comp purposes? The rules are often stricter.
• At what headcount do I need a policy, and do part-time, seasonal and family helpers count?
• Will an exemption certificate satisfy my clients' contracts, or do they require an actual policy?
• If I cover myself, how will owner pay be counted in my premium, and how does the year-end audit work?
• When does my exemption or policy expire, and does it apply only to this one LLC?

Get the answers in writing where you can, and keep a copy of your certificate or exemption on your phone. That way you can send it the moment a client asks.