Virginia Workers Compensation: When Your Business Crosses the Three Employee Line
Key takeaways
- Virginia requires workers compensation once a business regularly has three or more employees in service. Maryland and DC effectively require it at one.
- Corporate officers, LLC managers, family members, part time and seasonal workers all count toward the three.
- Subcontractor employees count toward your total even when the subcontractor carries its own policy.
- Penalties run to 250 dollars per day up to 50,000 dollars, plus the Commission can order you to stop operating.
- A DMV business crossing into Virginia should not assume the Maryland rule travels with it, in either direction.
If you run a business in Northern Virginia and you have two employees, you may not be required to carry workers compensation. If you run the same business in Gaithersburg or the District, you almost certainly are.
That is one of the few places where the three jurisdictions we work in genuinely disagree, and it catches people going both directions across the river.
The rule, and where it actually lives
Virginia Code section 65.2-800 requires every employer subject to the Workers Compensation Act to carry insurance. What makes you subject is buried one section earlier, in the definition of employee at section 65.2-101, which carves out employees of any business that “has regularly in service less than three employees in the same business within this Commonwealth.”
So the trigger is three or more regularly in service. The Virginia Workers Compensation Commission states it plainly and adds that there are no waivers and no exceptions.
Maryland and the District do not have a comparable numeric threshold. Both effectively require coverage from the first covered employee. If you are a Maryland employer who has assumed your Virginia crews are exempt, or a Virginia employer who has assumed the three employee rule follows you into Montgomery County, one of those assumptions is expensive.
Who counts toward the three
Broader than most owners expect. The Commission counts:
- Corporate officers and LLC managers, even if they perform no regular work and draw no regular salary.
- Family members who perform work for the business.
- Part time, seasonal and temporary workers.
- Minors.
- Workers at churches, charities and nonprofits.
There are narrow ways to change the count. An executive officer can reject coverage for injury by accident by written notice filed with the Commission on Form 16A, and an officer who is not paid on a regular basis and who has properly rejected is not counted toward the three. Sole proprietors, sole shareholders, sole LLC members and partners can elect the other way, opting in as employees if the insurer is notified.
What does not exist is a waiver. The Commission is direct about it: Virginia law does not lend itself to providing a waiver or exemption form for a sole proprietor. If someone offers you one, it is not a Virginia document.
The subcontractor rule that catches contractors
This is the one worth reading twice.
Subcontractor employees count toward your total. One owner plus two subcontractors with one employee each is three, and you need a policy even if both of those subcontractors carry their own coverage.
Section 65.2-302 goes further. An owner or contractor who subcontracts out work that is part of its own trade, business or occupation is liable to pay compensation to any worker employed in that work, exactly as if that worker had been directly employed. The liability runs down through lower tier subcontractors. Calling someone a 1099 independent contractor does not settle it either. The Commission applies a control test looking at selection, dismissal, payment of wages and control over the manner and means of the work.
There is a premium consequence as well. Your carrier can charge you premium for any uninsured subcontractor you hired, including a sole proprietor with no employees of his own. Collect certificates from every sub and keep them for the audit.
What noncompliance costs
Section 65.2-805 sets a civil penalty of up to 250 dollars per day of noncompliance, capped at 50,000 dollars. You also lose the common law defenses of employee negligence, fellow servant negligence and assumption of risk if an injured worker sues you directly, which is often the larger exposure.
After a finding and fifteen days written notice, the Commission may order a noncompliant employer to cease and desist all business transactions and operations. A knowing and intentional failure to carry coverage is a Class 2 misdemeanor.
Separately, localities are barred from issuing or renewing a contractor business license to a contractor without required coverage, and certifying falsely on that application is itself a misdemeanor.
One exception worth knowing
Farms run on a different number. Agricultural and horticultural laborers are excluded unless the employer regularly has in service more than three full time employees, which is a four employee trigger rather than three. If you farm in Loudoun or Fauquier, that distinction is yours.
Frequently Asked Questions
How many employees before a Virginia business needs workers compensation?
Three or more regularly in service. Virginia Code section 65.2-101 excludes employers with fewer than three from the Act, and section 65.2-800 requires everyone subject to it to insure.
Do corporate officers count toward the Virginia threshold?
Yes. The Commission counts executive officers and LLC managers even when they perform no regular work and take no regular salary. An officer can reject coverage for injury by accident on Form 16A, and an officer who is unpaid on a regular basis and has properly rejected is not counted.
Do subcontractors count toward the Virginia workers compensation threshold?
Yes. Subcontractor employees count toward your total, and coverage is required at three even if every subcontractor carries a policy. Section 65.2-302 also makes the hiring contractor liable for compensation as though those workers were directly employed.
Is there a workers compensation exemption form for a Virginia sole proprietor?
No. The Commission states that Virginia law does not lend itself to providing a waiver or exemption form for a sole proprietor. Any document presented as one should be treated with suspicion.
What happens if a Virginia business does not carry required coverage?
Civil penalties of up to 250 dollars per day to a maximum of 50,000 dollars, loss of the common law defenses in a direct suit by an injured worker, a possible cease and desist order covering all business operations, and Class 2 misdemeanor exposure for a knowing and intentional failure.
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