Do limited liability companies (LLCs) need workers' comp insurance?

Workers' compensation insurance provides coverage for workplace injuries and illnesses, as well as lost wages from employees needing to take time off from work for recovery.

State laws typically require small businesses to carry workers' comp once they hire a certain number of employees (and many states require it after the first hire). This typically includes both full-time, part-time, and even seasonal or temporary workers.

Workers' comp covers medical expenses for injured employees, such as emergency medical treatment, physical therapy, disability benefits, and ongoing medical bill payments.

Additionally, workers' compensation would protect your business should an employee decide to sue over their injuries. This policy also provides death benefits to surviving family members if an employee is fatally injured.

State laws determine whether a business must carry workers' compensation insurance. If your limited liability company (LLC) hires workers, you'll typically need to provide workers' compensation for your employees.

Certain states require LLC members and managers to be covered by workers' compensation, but most automatically allow them to be excluded from workers' comp requirements or to opt out voluntarily.

While some states allow LLC managers to opt out of state workers' comp requirements, there may be a cap on the number of managers who can be exempt. For example, in Washington state, if a business has more than eight managers, workers' comp will need to be provided for managers outside the eight exemptions.

Most LLCs with no employees are not required to carry workers' comp, but many single-person business owners elect to carry it anyway to ensure they are protected by workers' comp benefits for themselves.

In some states, LLCs with members who are all related up to the third degree are not held to the same coverage requirements as non-related LLC members. They do not require workers' comp in the same way as non-related employees and members.

Some states have a cap on how many family members can be exempt from workers' compensation requirements, while others do not.

"Third-degree relatives" include children, parents, siblings, aunts, uncles, grandparents, great-grandparents, nieces, and nephews.

Consult with state laws or speak to a licensed insurance agent about any exemption waivers that may need to be filed and whether this rule applies to your state and business structure.

Generally speaking, a single-member LLC with no employees is not legally required to carry workers' compensation insurance. However, workers' compensation coverage is still highly recommended for independent contractors and sole proprietors.

A workers' comp policy would still provide coverage for work-related injuries even if you're just insuring yourself. In fact, workers' compensation covers many business owners in the event of work-related injuries that personal health insurance will typically deny.

For example, a self-employed tech consultant might seek out medical services for carpal tunnel but their private healthcare might deny the claim if they determine this was a workplace injury, not a personal one. A workers' compensation claim would have paid for the medical care, in addition to lost wages from taking time off for physical therapy and recovery.

Workers' comp would also provide death benefits in the event that a sole proprietor has a fatal accident while performing work duties.

Many insurance companies offer discounts to small businesses that pay for their workers' compensation plan annually rather than monthly.

Electing to pay for your business insurance in a lump sum at the beginning of your policy instead of in installments could lead to savings over the course of your policy.

One factor that determines your workers' compensation insurance policy cost is your previous claims history. Prevent future claims and price increases by engaging in risk management strategies that reduce liability claims against your business.

For example, encourage frequent breaks and good ergonomics to prevent common workplace injuries that often lead to workers' comp claims. Regular trainings and workplace safety audits are also great ways to prevent claims.

Different employees take on different levels of risk. An electrician, for example, is likely going to experience more day-to-day risk than a web designer.

Workers' comp class codes help determine insurance rates. This is why classifying your employees is important to keeping your workers' comp costs low, especially if you work in a relatively low-risk industry.

You can work with a licensed insurance agent if you have questions about how to properly classify yourself and your employees when signing up for workers' compensation insurance.

There are some workers' compensation insurance policies and payment structures that are known to be a bit more budget-friendly for small businesses.

A pay-as-you-go policy, for example, charges your business based on current, up-to-date payroll instead of annual projections. This helps business owners avoid large upfront down payments and keeps costs accurate throughout the year.

You may also qualify for a minimum premium workers' compensation policy if you work in a lower-risk industry. To qualify for this policy, you would need to run a very small business and operate with minimal risk.

Sometimes you need a certificate of insurance (COI) to fulfill a requirement or sign a contract, but you don't actually need the workers' compensation coverage. For this, you could consider a workers' compensation ghost policy.

This policy acts as a technical workers' comp policy, but doesn't provide any actual coverage for the policyholder. It also costs significantly less because it does not actually provide any workers' compensation benefits.

Keep in mind that ghost policies only work for single-person businesses and are not legal in all states. You'll need to check your local workers' compensation laws before purchasing a ghost policy.

TechInsurance helps small business owners compare policy quotes from multiple insurance carriers with one easy online application.

Start an application today to find the right insurance coverage at the most affordable price for your business. 

If you have questions about workers' compensation and other important policies, our licensed insurance agents are here to help.

Small business owners typically begin coverage and receive a certificate of insurance within 24 hours of starting an application.