Not every small business owner is required to carry workers compensation insurance in the state of Virginia. The state requires that any business with 3 or more employees in the state of Virginia is required to carry workers compensation insurance.
However, who counts as an employee is different depending on how your business is structured. For instance, a sole proprietor is not considered an employee of the company. So if a sole proprietor has two employees, the state views his company as only having two employees and he is not required to carry workers comp, assuming he doesn’t sub any work out. I’ll discuss subs shortly.
Now let’s assume that the sole proprietor decides he wants to incorporate and he is the President and only Officer or Director of the company but he still has those same two employees. The state now views his company as having three employees because the state views him as an employee of the corporation now and workers compensation insurance is required.
Limited Liability Companies or LLC’s are very muddy in the state of Virginia when it comes to Workers Comp and they recently released some clarification on this very topic. To summarize:
· LLC’s who only have one member do not count that one member as an employee
· Members of an LLC who are not active in the business do not count as an employee
· Members of an LLC who are active in the business DO count as employees
For those that sub work out, the employees of your sub are considered your employees in determining how many employees you have. This is whether your sub has their own Workers Compensation policy or not. So, for example, let’s assume you are a sole proprietor with no employees but you sub work out to someone who has 5 employees that has their own Workers Compensation policy. The state views you as having 5 employees and therefore you are required to carry Workers Compensation. This is an issue that many contractors face.
If you have questions as to whether or not you are required to carry Workers Compensation or not, please contact us for a free consultation.