“Do I need workers’ comp for one helper?” The honest answer starts with “which state?” The National Association of Insurance Commissioners says nearly all states require employers to buy a workers’ compensation policy for their employees, but the states draw the line in very different places. Some start at the first employee, some at three or four, and Texas lets most private employers choose. The rule for one helper on a roofing job in Florida is not the rule for the same helper in Georgia.
Four states, four different lines
| State | Who must carry it |
|---|---|
| California | Every employer, “even if they have only one employee.” The state adds that a roofer with no employees must still carry it. |
| Florida | In construction, any business with one or more employees. Other private businesses, four or more. (Fla. Stat. 440.02(20)(b)) |
| Georgia | Businesses that regularly employ three or more people, regular part-time workers included. Officers and LLC members count toward the three. |
| Texas | Most private employers may choose. Employers on a government contract must cover the employees on that project. |
Those are four examples, not a 50-state list. Your state’s workers’ compensation agency publishes its own rule, and that page is the one to read. Here is what the details look like once you get past the headline number.
Owners and officers
States treat the owner differently from the crew. Georgia’s board says its law “considers sole proprietors and partners to be employers not employees,” and they can elect coverage for themselves in writing. Up to five corporate officers or LLC members may waive coverage on form WC-10, but they still count toward the three-employee line. In Florida, a corporate officer may file to be exempt. In construction, no more than three officers of a company may do so, and each must own at least 10% of the stock. Under Florida’s definitions, an “officer of a corporation” includes an LLC member who owns at least 10% (Fla. Stat. 440.02(11) and (18)(b)).
Subcontractors can become your employees for comp
Florida’s statute shows how a sub’s crew can land on your policy. When a contractor sublets work, the employees of the contractor and the subcontractor on that job “shall be deemed to be employed in one and the same business,” and the contractor is liable for their compensation, “except to employees of a subcontractor who has secured such payment” (Fla. Stat. 440.10(1)(b)). The next paragraph requires a contractor to get evidence of the sub’s workers’ comp insurance. What that means at audit time is in Uninsured Subcontractors: The Audit Bill You Did Not Budget. Whether a helper you pay on a 1099 is really an employee is its own test, covered in 1099 or W-2? Classifying Helpers Without Getting Burned.
Texas: optional, with a price
The Texas Department of Insurance says “Texas doesn’t require most private employers to have workers’ compensation.” An employer that goes without, called a non-subscriber, gives something up. If an injured employee sues, the employer cannot argue that the employee’s own negligence caused the injury, that another employee’s negligence caused it, or that the employee knew about the danger and accepted it. A non-subscriber must also file an annual notice with the Division of Workers’ Compensation, post notices at the workplace, and tell new employees in writing that they are not covered. The NAIC notes the other side of the trade: where comp applies, the law makes it the injured employee’s sole remedy.
What class codes do
Once you buy a policy, your premium is mostly set by two things: what kind of work your payroll does, and how much payroll there is. A Florida Department of Financial Services presentation lays out the classification system. Classification codes are “4 digit numbers assigned by NCCI,” the National Council on Compensation Insurance, and there are about 800 basic codes. Three ideas from it matter most.
Construction has a rule of its own. North Carolina’s rate bureau manual, as one example, assigns each type of construction work to its own classification “only if separate payroll records are maintained for each operation.” If they are not, “the highest rated classification that applies to the job or location where the operation is being performed must be used.” Your state’s manual may word it differently. Either way, time records that say what kind of work each hour was spent on are worth keeping.
Why the code matters: a worked example
NCCI describes the arithmetic. The rate approved by the state for each classification “is applied per $100 of payroll,” the premiums for each class are added up, and the experience modifier, if you have one, is applied to the total. The same Florida presentation shows how far apart rates sit, in the 2021 rates it lists: carpentry (5403) at $7.29 per $100 of payroll and clerical office work (8810) at $0.16. Say a carpentry contractor has $150,000 of field payroll and a $30,000 office manager, and uses those rates as an example.
| Example, using the presentation’s 2021 rates | Premium |
|---|---|
| Field payroll: $150,000 ÷ 100 × $7.29 (carpentry) | $10,935 |
| Office manager, coded correctly: $30,000 ÷ 100 × $0.16 (clerical) | $48 |
| Office manager, left in carpentry: $30,000 ÷ 100 × $7.29 | $2,187 |
| Cost of the wrong code on one person, before any modifier | $2,139 |
Your rates are on your own policy, by code, and they change. The method is the part to take away. Check that every person on payroll sits in the right class, and ask your agent how your state handles someone who splits time between the office and the field. The same per-$100 rate is one line in your loaded labor cost, worked through in Your Real Hourly Cost: Working Out Labor Burden.
The experience modifier
NCCI’s guide explains that experience rating compares “the experience of individual employers with the average employer in the same classification,” and the result is a modifier applied to your premium. A new business with no data gets a unity factor, 1.00. Below 1.00 is a credit, above 1.00 a debit. Eligibility requirements are set state by state, and once an employer meets them, experience rating is mandatory. NCCI’s plan does not apply everywhere: not in California, Delaware, Michigan, New Jersey, New York or Pennsylvania, and not in North Dakota, Ohio, Washington and Wyoming, the four monopolistic states that run their own plans and rates. In NCCI’s own illustration, a $100,000 premium becomes $75,000 at a 0.75 modifier and $125,000 at 1.25. Safety and claims history show up in the price for years.
The year-end audit
The premium you pay at the start of a policy is an estimate. California’s State Compensation Insurance Fund explains it in its premium audit guide: the premium is based on “anticipated payroll multiplied by rates” for your operations, and after the term, an audit examines your records “to establish the actual payroll and to make sure the correct classification codes are used.” The audit “will generate either a bill or a refund.” Other insurers and states have their own procedures, but the same guide shows what an auditor looks for:
This week
- Read your state workers’ compensation agency’s page on who must carry coverage. Note how it counts part-time workers, owners and officers.
- If you have a policy, check the class code on every person, the office included.
- Start keeping time records by type of work, and a log of any cash wages.
- Get a current certificate of insurance from every subcontractor before the first payment.
- Put the audit month on your calendar and keep payroll reports and sub certificates in one folder.
Workers’ comp is one policy among several a trade business carries. The others are in Contractor Insurance: Liability, Commercial Auto, Tools and Umbrella.
General information, not legal or tax advice. Rules change and vary by state; check with the agency named above or a professional for your situation.