If you run a limited liability company (LLC), chances are, you already know you need to protect it with a comprehensive business insurance policy. However, you may be wondering, "Does a single-member LLC need workers' comp?" Whether your business needs workers' compensation insurance depends on a few factors, including your industry and location. However, there are benefits to having workers' comp for an LLC even if it's not required by law.
A local independent insurance agent can help you find the right LLC workers' comp insurance policy. They'll get you set up with the ideal amount of coverage. But first, here's a detailed answer to the question, "Do LLC members need workers' comp?" and when and why this coverage might be necessary.
Key Takeaways - Does an LLC Need Workers' Comp Insurance?
- LLCs might still be required by law to have workers' compensation insurance even if they don't have any employees, depending on their industry and location.
- Workers' compensation can benefit LLCs by covering the cost of employee medical expenses, lost wages, and more after a work-related injury or illness.
- Small businesses pay an average of $69 per month or $829 per year for workers' comp coverage.
- It's strongly recommended to work with an independent insurance agent, who can tailor coverage to your unique LLC and help ensure your business is in compliance with local coverage regulations and laws.
What Is Workers' Compensation Insurance?
The definition of workers' compensation insurance is a type of business insurance that provides coverage for employee work-related injuries, illnesses, disabilities, and fatalities. This coverage can pay for the medical bills of affected employees, replace a portion of their lost wages, and even fund disability treatments. Workers' compensation benefits can also be used to pay for funeral expenses if there's a work-related fatality.
Do LLCs Need Workers' Compensation Insurance?
LLCs are sometimes exempt from local workers' comp regulations. However, to properly answer the question, "Do I need workers' comp for my LLC?" you'll need to review the LLC workers' comp laws in your state.
Many states require businesses to have workers' comp if they have any employees. This also often applies to LLCs, although there are some exceptions based on the structure of your company, such as single-member vs. multi-member.
However, even if your LLC doesn't have any employees, you might still need to get a workers' comp policy. The number of executive officers or members your LLC has can determine its need for workers' comp. That's why it's important to review LLC workers' compensation requirements in your area.
Still, if your LLC has no members, officers, or employees, having workers' comp can still be a wise choice. Your private health insurance typically won't cover costs related to injuries, illnesses, or disabilities that develop because of your job. So, it may be well worth it to look into getting single-member LLC workers' comp to protect yourself from possible expenses. An independent insurance agent can help you review the LLC workers' comp requirements in your state.
What Does Workers' Comp Cover for an LLC?
An LLC can benefit from having workers' comp in the same way that any other business can, since this coverage provides reimbursement for worker injuries, illnesses, disabilities, and fatalities that arise due to job duties or the work environment. To be covered, the diagnosis must have been caused by the job in some way.
Workers' comp can provide reimbursement for the following:
- Medical treatments
- Rehabilitation
- Disability benefits
- Death benefits
- Hiring costs
- Lost wages
Workers' comp can replace an affected worker's wages, typically up to two-thirds of their standard pay, during any time they must miss work to recover. This coverage can also reimburse a business for hiring costs if it must recruit new talent to replace an injured, ill, or deceased employee due to a covered incident.
When Are LLCs Required to Have Workers' Comp Insurance?
Regardless of a business's structure, including LLC, corporation, etc., most states require workers' comp if a business has a certain number of employees. Exemptions do exist, but they're limited.
It's also important to consider if your LLC's members are actually considered employees. So, do LLC members need workers' comp? LLC members of a company that is taxed as a partnership, and LLC owners, are typically not legally considered employees and can opt in or out of coverage.
Workers' comp laws vary based on a business's industry, number of employees, and other factors. An employee's classification, including whether they're full-time or part-time, also impacts workers' comp requirements. For example, a business might not be required to carry workers' comp if it only ever hires seasonal employees.
Your LLC may be required to have workers' comp if it has at least one employee or if it has any members or officers who aren't related. Often, workers' comp exemptions only apply to LLCs with eight or fewer members.
In many cases, LLC managers and members with management rights are excluded from workers' comp requirements. However, it's critical to research the workers' comp laws in your state to avoid any penalties for non-compliance, including fines, jail time, etc.
Workers' Comp Exemptions for LLCs with Family Members
In certain states, the business is typically exempt from workers' comp requirements if an LLC's members are related to each other within the third degree (i.e., parents, siblings, grandparents, children, aunts, uncles, nieces, nephews, and great-grandparents).
If all LLC members are related, it doesn't matter how many members the business has. The LLC would still be exempt from workers' comp requirements even if a dozen family members belonged to it. However, your LLC might still choose to protect its employed family members with workers' comp to pay for expensive medical costs, etc., for work-related incidents.
Does a Single-Member LLC Need Workers' Comp Coverage?
A sole proprietorship, or an LLC with no employees or members, is typically exempt from workers' comp requirements. However, having coverage can still be beneficial, even for single-member LLCs, because it can reimburse your business for the cost of work-related accidents that result in an injury, illness, disability, or fatality.
Your private health insurance often won't pay for medical expenses related to injuries, etc., that are caused by your job duties or workplace. Workers' comp can also reimburse you for a portion of your lost wages if you need time off work for recovery.
Single-member LLCs might also qualify for a workers' comp ghost policy, which can provide a certificate of insurance (COI) without actual benefits. Having proof of coverage can allow your LLC to make contracts with prospective clients who might otherwise decline to work with you. Ghost policies are often used by sole proprietors, independent contractors, and other self-employed individuals.
Workers' Comp Can Protect an LLC from Employee Lawsuits
Even if your LLC is exempt from workers' comp requirements, if it has any employees, it's vulnerable to lawsuits for workplace accidents and more if it lacks the right coverage. Providing workers' compensation exempts a business from employee lawsuits and lawsuits from their family members for covered injuries, illnesses, disabilities, and fatalities.
If your business provides this coverage, it cannot be sued by employees or their families for covered incidents. This can save your LLC tens of thousands of dollars or more for workplace accidents and even worker disabilities that develop over time due to job duties.
How Much Does Workers' Comp Cost for an LLC?
Small businesses pay an average of $69 per month or $829 per year for workers' compensation insurance. However, the cost of workers' comp for an LLC can vary depending on a few factors. These often include:
- Industry
- Location
- Number of employees, members, and officers
- Years in business
- Operations and exposures
- Prior claims history
A local independent insurance agent can help you find affordable LLC workers' comp insurance near you.
Penalties for Not Having Workers' Comp
If your LLC is legally required to have workers' comp and it fails to secure coverage, it could face various legal consequences. These can include LLC workers' comp fines and/or lawsuits.
There are other potential business risks of skipping coverage to be aware of, too. Your LLC could be forced to temporarily suspend operations until the appropriate amount of coverage is secured, which could hurt your profits. Remember to review the workers' compensation regulations in your state to become familiar with the penalties for workers' comp non-compliance.
The Benefits of Getting Workers' Comp Even If It's Not Required
Business insurance for an LLC should still include workers' compensation, even if coverage isn't legally required. Workers' comp for an LLC provides the benefit of exempting your company from employee lawsuits for work-related accidents and lawsuits filed against your business by their family members.
Workers' comp for LLC owners can help protect your personal and business assets. LLC owners' workers' comp coverage can also help you get reimbursement for work-related injuries, illnesses, etc. that would be denied by your personal health insurance.
Another reason why LLCs should get workers' compensation insurance is to attract and retain employees. Prospective workers may be more tempted to sign on with your company if they know and trust they'll be properly covered if a work-related incident occurs. An independent insurance agent can provide even more examples of the many benefits of workers' comp for an LLC.
How to Get Workers' Comp for an LLC
You can buy workers' comp for an LLC from private insurance companies or from state insurance funds. When you're ready to find the right small business insurance for an LLC that includes workers' compensation, you'll want to start by evaluating your unique company's coverage needs based on your risk level and number of employees.
It's also helpful to compare multiple insurance providers to find the best workers' comp insurance for an LLC. An independent insurance agent can help shop and compare small business workers' compensation insurance for an LLC from multiple top-rated carriers in your area and get you equipped with a policy that includes the ideal amount of coverage.
An Independent Insurance Agent Can Help You Find Workers' Comp for an LLC
When it's time to find the right workers' comp insurance for your LLC, no one's better equipped to help than an independent insurance agent. These agents have access to multiple workers' comp insurance companies, so they're free to shop and compare policies and rates for you.
They'll get you matched to a policy that offers the best blend of coverage and cost. And down the road, your agent will still be there to help update your coverage as your business's needs evolve, and can even file workers' comp claims for you.
Sources
https://www.insureon.com/small-business-insurance/workers-compensation/llc-coverage-requirements
https://www.moneygeek.com/insurance/business/cheap-workers-compensation-insurance/
