Protect Your Employees and Your Business
Workers compensation insurance covers medical bills and lost wages when employees get injured on the job. Required by law in Alabama, Georgia, and Tennessee for most businesses—especially contractors. Protects you from employee lawsuits and provides guaranteed benefits.
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Is workers compensation required for contractors?
Yes—contractors MUST have workers comp in Alabama, Georgia, and Tennessee. Alabama: Required with 1+ employees for construction; 5+ for other businesses. Georgia: Required with 3+ employees (any industry). Tennessee: Required with 5+ employees; 1+ for construction. Even sole proprietors often need it to meet general contractor requirements or get certificates of insurance. Penalties: $100-$1,000/day fines, criminal charges, stop-work orders, personal liability for injuries. Workers comp covers employee medical bills, lost wages (2/3 salary), disability, death benefits—and protects you from lawsuits. Contractors typically pay $3-$25 per $100 payroll depending on trade (roofers highest, office staff lowest).
Workers Comp Requirements by State
- Construction: 1+ employees
- Other businesses: 5+ employees
- Penalties: $100-$1,000/day fine
- Criminal: Misdemeanor charges
- All industries: 3+ employees
- Part-time counts: Yes
- Penalties: $1,000-$10,000 fine
- Criminal: Misdemeanor charges
- Construction: 1+ employees
- Other businesses: 5+ employees
- Penalties: $50-$1,000/day fine
- Criminal: Class C misdemeanor
Contractor-Specific Requirements
- ✓ General contractors with employees
- ✓ Subcontractors (even with 1 employee)
- ✓ Electricians, plumbers, HVAC contractors
- ✓ Roofers, framers, concrete workers
- ✓ Landscaping and tree service companies
- ✓ Painters, drywall, flooring installers
- • General contractors require it for COI
- • Cannot bid on commercial projects without it
- • Banks require it for construction loans
- • Protects you if you get injured on the job
- • Covers you while working on client property
- • Required by many municipalities for permits
Reality: Even if legally exempt, most contractors need workers comp to work.
Penalties for Non-Compliance
- • $100-$1,000 per day fine for operating without required coverage
- • Criminal misdemeanor charges (up to 1 year in jail)
- • Personal liability for all employee medical bills and lost wages
- • Stop-work orders shutting down your business until compliant
- • Cannot bid on contracts or work with general contractors
What Workers Comp Covers
Doctor visits, hospital stays, surgery, prescriptions, physical therapy—100% covered with no deductible
2/3 of employee's average weekly wage while unable to work (tax-free benefits)
Temporary or permanent disability payments based on injury severity and wage loss
Funeral expenses ($7,500) plus ongoing payments to spouse and dependents
The "Exclusive Remedy" Protection
Workers comp is the only way employees can receive benefits for workplace injuries. In exchange, employees cannot sue you for negligence, pain and suffering, or punitive damages. This protects your business from devastating lawsuits—even if the injury was your fault.
Real Contractor Workers Comp Claims
Roofer falls through roof decking
Spinal injury, multiple surgeries, 18 months lost wages, permanent disability, ongoing pain management
$325,000
Total cost
Electrician electrocuted on job site
Severe burns, cardiac arrest, ICU stay, skin grafts, 12 months recovery, permanent scarring
$185,000
Total cost
Framer cuts hand with circular saw
Severed tendons, emergency surgery, hand therapy, 9 months lost wages, reduced grip strength
$95,000
Total cost
HVAC tech falls from ladder
Broken leg and wrist, surgery on both, 8 months recovery, physical therapy
$145,000
Total cost
Concrete worker develops back injury
Herniated discs, spinal fusion surgery, 14 months lost wages, permanent lifting restrictions
$220,000
Total cost
Tree trimmer killed by falling branch
Fatal injury, death benefits to spouse and 3 children for 20+ years, funeral expenses
$950,000
Total cost
Without workers comp insurance, you would pay these costs directly—plus legal fees if the employee sues. With insurance, you pay only your premium. One serious injury can bankrupt an uninsured business.
How Workers Comp Cost Is Calculated
The Formula
(Payroll / $100) × Class Code Rate × Experience Modifier = Premium
1. Payroll
Total annual wages for all employees (including overtime, bonuses, commissions)
2. Class Code Rate
Risk rating based on job type—set by National Council on Compensation Insurance (NCCI)
3. Experience Modifier (Ex-Mod)
Your claims history compared to similar businesses (1.0 = average, <1.0 = discount, >1.0 = surcharge)
Alabama Class Code Rates (per $100 payroll)
- • Office workers: $0.50-$1.00
- • Retail sales: $0.75-$1.50
- • Accountants: $0.60-$1.20
- • IT professionals: $0.80-$1.50
- • Plumbers: $3.00-$5.00
- • Electricians: $2.50-$4.50
- • HVAC technicians: $3.50-$5.50
- • Landscapers: $2.00-$4.00
- • Framers/carpenters: $8.00-$12.00
- • Concrete workers: $7.00-$10.00
- • Painters: $6.00-$9.00
- • Flooring installers: $6.50-$9.50
- • Roofers: $15.00-$25.00
- • Tree trimmers: $18.00-$30.00
- • Demolition: $12.00-$20.00
- • Steel erectors: $20.00-$35.00
Example Calculation
Business: Small electrical contractor with $200,000 annual payroll
Class Code Rate: $4.00 per $100 payroll
Experience Modifier: 1.0 (average claims history)
Annual Premium: ($200,000 / $100) × $4.00 × 1.0 = $8,000/year
Ghost Policies for Sole Proprietors
What Is a Ghost Policy?
A ghost policy (also called a "zero-payroll policy" or "owner-only policy") is a workers compensation policy for sole proprietors and business owners with no employees. It provides proof of insurance (Certificate of Insurance/COI) without covering anyone—because there are no employees to cover.
The policy is "ghost" because it exists on paper but has minimal or zero premium since there's no payroll to insure. You're essentially buying the certificate, not the coverage.
Why Sole Proprietor Contractors Need Ghost Policies
- • General contractors require COI from all subs
- • Commercial property owners demand proof
- • Cannot bid on jobs without certificate
- • Required to pull permits in many cities
- • Banks require it for construction loans
- • Protects you if injured on the job
- • Covers medical bills if you get hurt
- • Provides lost income benefits
- • Some states allow owner coverage
- • Peace of mind for dangerous trades
Real-World Example
Scenario: You're a sole proprietor electrician in Alabama. Legally, you don't need workers comp because you have no employees. But you get a call to wire a new commercial building. The general contractor says, "I need your workers comp certificate before you can start."
Without a ghost policy: You lose the job. The GC cannot let you on site without proof of insurance—it's in their contract with the property owner and required by their insurance.
With a ghost policy: You provide the COI, get the job, and pay only $500-$1,500/year for the certificate. The policy has $0 payroll reported, so the premium is minimal.
How Ghost Policies Work
Purchase the Policy
You buy a workers comp policy with yourself listed as the only "employee" but with $0 or minimal reported payroll.
Pay Minimum Premium
Most carriers charge $500-$1,500/year minimum premium for ghost policies. Some charge based on estimated revenue instead of payroll.
Receive Certificate of Insurance
You get an official COI showing active workers comp coverage. This satisfies general contractor and property owner requirements.
Annual Audit
At year-end, the carrier audits your payroll. If you still have no employees, no additional premium is owed. If you hired someone, you'll owe back premium.
Important: Ghost Policies Don't Cover Employees
If you hire even one employee—full-time, part-time, or day laborer—you MUST report their payroll immediately. Ghost policies are only for true sole proprietors with zero employees.
Penalty for hiding employees: If you get caught with unreported employees, you'll owe back premium for the entire policy period, plus penalties and fines. The carrier can also cancel your policy and report you to the state.
How to Lower Your Workers Comp Cost
- • Implement safety training programs
- • Provide proper safety equipment (PPE)
- • Maintain equipment and vehicles
- • Create a safety culture with incentives
- • Investigate near-misses to prevent injuries
- • Offer return-to-work programs for injured employees
- • Accurately classify employees by job duties
- • Exclude corporate officers if allowed
- • Pay premiums annually (avoid installment fees)
- • Shop multiple carriers every year
- • Audit payroll annually to avoid overpaying
- • Join industry safety groups for discounts
TCDS Advantage
We shop 50+ workers comp carriers to find you the best rate. Our experience helps ensure accurate job classifications and identifies all available discounts. We also help you implement safety programs that reduce claims and lower your experience modifier over time.
Average savings: 15-25% compared to buying direct or using only one carrier.
Worried About Your Workers Comp Audit?
Most contractors dread audit season. Learn exactly what to expect, how to prepare, and how to avoid surprise bills at renewal.
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