Workers' Compensation Insurance
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Does a limited liability company (LLC) need workers' comp insurance?

Whether your limited liability company (LLC) needs workers’ compensation coverage depends on the workers’ compensation law in your state, whether you have employees, and how many corporate officers or members your LLC has.

What is workers' compensation and does an LLC need it?

A workers’ compensation policy covers the medical care for workplace injuries and illnesses. It can also cover the lost wages of an injured employee. It’s required in most states for businesses with one or more employees, although LLCs are treated a bit differently.

If your limited liability company has any employees, it will need a workers’ compensation insurance policy. If your LLC doesn’t have employees, your need for workers’ comp depends on how many executive officers or members you have and other factors related to your business.

When are LLCs required to carry workers’ comp?

Most states require any business with one or more employees to carry workers’ comp insurance, regardless of how they’re structured. You would have to provide this coverage, whether they’re full-time or part-time employees.

If your LLC doesn’t have employees, then your workers’ comp requirements depend on a couple of factors, such as how many members it has and whether or not they’re related.

LLC managers are typically excluded from workers’ comp requirements, though the number of exemptions is limited by state law. LLC managers are defined as those who can act on behalf of the LLC in making business decisions, such as signing contracts or buying and selling property.

If some of your LLC members have management rights, they also would be excluded from workers’ comp requirements. Any members working for the LLC that don’t have management rights would be required to be covered by workers’ comp.

This workers’ comp exemption is limited to only eight people, regardless of how many managers your LLC has. If your LLC had a dozen members, you would have to provide workers’ comp insurance coverage for at least four of them, even if they were managers.

Are family members exempt from workers’ comp requirements?

Workers’ comp coverage requirements are treated differently for LLCs whose members are all related to each other within the third degree.

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

This workers’ comp exemption is allowed regardless of how many family members belong to the LLC.

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Why does a single member LLC need workers’ comp coverage?

Although a single-member LLC with no employees would not need workers’ comp insurance under the law, this coverage could still benefit a sole proprietor LLC.

This is especially true if your business puts you at risk of a work-related injury or illness, such as the construction or healthcare fields. Your personal health insurance is unlikely to cover your medical bills arising from a work-related mishap.

Workers’ comp can offset some of your lost wages if you’re unable to work for a while. It can also provide disability benefits, supplemental job displacement benefits, and a death benefit where your dependents receive any of your unused workers’ comp benefits after a fatal incident at work.

How can I save money on workers’ comp for an LLC?

There are many ways you can save money on workers’ comp insurance costs for your LLC, including:

  • Consider paying your premium annually, rather than monthly, as many insurers will offer a discount for annual payments.
  • If your number of employees fluctuates throughout the year, check if you qualify for a pay-as-you-go workers' comp policy. The flexible premiums are based on your monthly payroll, rather than having a fixed rate based on your annualized payroll data, which could help you save money.
  • If your business is considered low risk for a workers’ comp claim, you may be eligible for a minimum premium workers' compensation policy. As the name suggests, these policies offer the smallest premium an insurance company will sell a policy for and provide a minimum amount of coverage.
  • Improve your workplace safety to decrease your number of claims and, consequently, reduce your premiums. Employee safety training, providing the right safety equipment, and identifying and eliminating potential hazards can all add up to fewer claims and lower premiums.

Your personal health insurance is unlikely to cover your medical bills arising from a work-related mishap.

What is a ghost policy for workers’ compensation insurance coverage?

If you have an LLC that is a sole proprietorship, you might may qualify for a workers' compensation ghost policy. It’s most often used by businesses that don’t have employees, such as the self-employed and independent contractors, and sole proprietors.

For a small premium, a ghost policy gives you a certificate of insurance (COI) that you can use to qualify for contracts. Just keep in mind that a ghost policy doesn’t offer any actual benefits other than your proof of insurance.

Self-insured employers might be tempted to buy a ghost policy if they have sufficient funds to cover workers’ compensation claims. Though, you should check with your state’s workers’ compensation board or department of labor to make sure you can legally do so.

An uninsured employer could face hefty fines for failing to provide workers’ compensation benefits, which could financially devastate your business. Regardless of whether workers' compensation is required or not, it's always a good idea to carry workers’ comp to keep yourself financially protected.

What other types of business insurance do limited liability companies need?

Workers' compensation protects your LLC in the case of an employee injury, but it doesn't cover other risks.

Consider getting these additional insurance policies for your LLC to fully protect your business:

General liability insurance

General liability insurance is often the first policy purchased by a new business. It insures against common third-party risks, including customer injury, advertising injury, and damage to a customer’s property.

Commercial property insurance

Commercial property insurance covers the cost of repairing or replacing your business property if it’s lost, stolen, or damaged. It’s often required by landlords to sign a commercial lease.

Business owner's policy (BOP)

A BOP combines general liability and commercial property insurance into one policy. It's typically less expensive than buying these coverages separately.

Professional liability insurance

Also known as errors and omissions (E&O) insurance or malpractice insurance, a professional liability policy covers the costs of client lawsuits over unsatisfactory work, such as missed deadlines, mistakes, and undelivered services.

Cyber liability insurance

Also known as cybersecurity insurance, a cyber liability policy insures against the high costs of data breaches and malicious software attacks. It provides also provides financial coverage for the cost of customer notification, credit monitoring, legal fees, and fines.

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What is the difference between general liability insurance and workers' comp?

Both general liability insurance and workers' compensation insurance provide coverage when someone is injured at your business. Learn the benefits offered by each policy, the key differences in coverage, and why you may need them for your business.

How to buy workers’ comp insurance for your LLC

Complete Insureon’s easy online application today to get insurance quotes from top-rated U.S. insurance carriers. You can also consult with an insurance agent on your business insurance needs. Once you find the right types of policies for your small business, you can begin coverage in less than 24 hours.

Updated: April 13, 2023
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