Workers' comp exemptions for sole proprietors
A general guide to workers' comp exemptions for sole proprietors and owners, why a GC may still want proof, and what to ask for instead of a certificate.
Many states let sole proprietors, and sometimes members of an LLC or officers of a corporation, choose not to carry workers' compensation on themselves. But the rules vary widely, construction is often treated differently from other industries, and a general contractor may still require proof of coverage or of a valid exemption. This page describes the general ideas. It does not state any one state's rule, so check your state's workers' compensation agency for the current requirements.
What an exemption usually means
In general terms, a workers' compensation policy covers employees. A sole proprietor with no employees is often not required to cover themselves, and some states let owners of an LLC or officers of a corporation opt out under conditions. Common variations include:
- Whether the exemption applies to construction at all, since several states restrict or change it for the building trades.
- Whether the owner must apply for and receive an exemption certificate or file a waiver.
- How long an exemption lasts and whether it must be renewed.
- Whether the exemption disappears once the business hires anyone.
Because these points differ by state, an answer that is right in one state can be wrong in the next.
Why a GC may still ask for proof
A sole proprietor's exemption covers the owner only. A GC cares about what happens if someone on the job is hurt and no policy responds. Many states have a statutory employer idea, described generally: in some situations a contractor higher in the chain can be held responsible for the injured worker of a subcontractor who lacks coverage. Whether and how that applies depends on the state and the facts, so ask an attorney or your workers' compensation carrier.
An uninsured injury can also lead to a claim against the GC's own policy, higher premiums at audit, or a stop-work order in some places. Many GCs write their subcontracts to require workers' compensation or a documented exemption from every sub, whatever its size.
What to ask for instead of a certificate
If a sub says they have no workers' compensation policy, you have options. Which ones are acceptable depends on your contract and your insurance professional:
- State exemption certificate or similar document, where your state issues one. Check that it is current and names the right person or business.
- Written statement of no employees if your contract accepts it, ideally signed.
- Contract-specific alternatives, such as a waiver form, a requirement that the sub list every worker, or a hold on hiring helpers without notice.
- A policy covering the owner, which some small businesses buy voluntarily.
Whatever you accept, keep a copy and set a renewal date. Exemptions expire or lose effect when circumstances change. A sole proprietor who hires a helper mid-job may need a policy at once.
How to check
- Look up your state's workers' compensation agency website, which usually explains exemptions and may allow certificate lookup.
- Ask the sub which category they fall into: no employees, owner-only entity, or employees covered by a policy.
- Match the answer to your subcontract requirement.
- Record the document and its expiration.
For other common requirements, see GC insurance requirements by trade, and for what to watch for on certificates, see certificate of insurance red flags.
Check this automatically
In ComplySub you set whether workers' compensation is required of your vendors. Vendors upload what they have through a link without an account. ComplySub flags a missing or expired workers' compensation certificate and reminds the vendor. It does not decide whether an exemption is valid under state law, and it is not legal or insurance advice.
This guide is general information, not legal or insurance advice. Insurance and licensing rules vary by state, carrier, and contract; confirm what applies to you with your insurance professional, attorney, or licensing board.