COI term

Workers' comp exemption

Some owner-only subs are genuinely exempt — but that shifts injury and audit risk onto you, so collect the state exemption certificate and require real coverage the moment they bring a crew.

Key takeaways

An exemption is real only for certain owner-only businesses — sole proprietors, partners, and some corporate officers or LLC members with no employees — and the rules vary by state. It is not a blanket "I don't need it."
The exposure is yours: at your own policy audit an uninsured sub's payroll is usually charged back to you, and in most states you become the injured worker's statutory employer if the sub carries nothing.
Collect the state exemption certificate (e.g. a Certificate of Election to be Exempt) — not the sub's word — and confirm it still applies. The instant the sub hires even one worker, you want a real WC certificate plus the WC 00 03 13 waiver in your favor.
Texas is the outlier: workers' comp is optional for most private employers there, so a Texas sub may legitimately carry none — which makes your own coverage and contract terms matter more, not less.

By the Sealinn team · 5 min read · Updated July 2026 · Written for general contractors

When an exemption is actually legitimate

Most states require workers' compensation the moment a business has employees. The common exception is the owner: a sole proprietor, a partner, or in many states a corporate officer or LLC member can elect out of covering themselves — but only for themselves, and only while they have no employees — which is why workers' comp sits on every GC's requirements checklist, and why the answer depends on which state you are in. That election is filed with the state, which issues an exemption certificate. So "I'm exempt" can be true — for a genuine one-person operation — and completely stale the day that person hires a helper.

Why it's your problem, not theirs

A missing workers' comp certificate is a cost to you, in two ways. First, your audit: when your own GL and WC policies are audited at the end of the term, the auditor charges you premium for the payroll of any subcontractor who can't show coverage — an uninsured sub is treated as your own labor. Second, statutory-employer laws in most states make the upstream contractor responsible when a subcontractor's worker is injured and has no coverage behind them. Either way, the sub's decision to skip workers' comp lands on your policy and your liability, not theirs.

An exemption certificate is not a COI

A state exemption certificate proves one owner opted out. It proves nothing about employees, and it goes stale the moment the sub hires. It is not a certificate of insurance and it is not coverage — treat it as a document you verify with the state, and re-verify if the crew grows.

Ghost policies: a certificate that covers nobody

There is a second version of this problem, and it is harder to spot because it arrives as a certificate rather than as a refusal. A ghost policy is a real workers' compensation policy, written at minimum premium for an owner-operator with no employees, on which the owner is excluded from coverage. It exists so the business can produce a certificate. It is legal, it is sold openly, and in construction-heavy states it is common.

Read what that means on a jobsite. The only person the sub is sending to your project is the owner. The owner is the one person the policy does not cover. So the certificate satisfies your checklist and the policy pays nothing if that person falls — which leaves you exactly where you would have been with an exemption certificate, except that you have a document that looks like coverage sitting in the file.

It is not a scam and the sub is usually not hiding anything; ghost policies exist because GCs demand certificates and a genuinely one-person business has nothing to insure. The point is that “they sent a comp certificate” and “the person on my roof is covered” are different facts, and only one of them is on the page.

Officer and owner exclusions on a real policy

The same gap turns up on larger subs in a subtler form. A company with a genuine comp policy covering its crew can still have its officers or LLC members elect out of coverage for themselves — a normal cost-saving choice, filed by endorsement. The certificate looks completely ordinary, because it is: the policy is real and the employees are covered.

It matters when the excluded officer is also the working foreman, which on a small trade contractor is the usual arrangement. The person supervising your job — often the most experienced person on it, and the one most likely to be doing something risky — is outside the coverage the certificate is evidencing.

One question settles both

Ask the agent: “Are the owners and officers included in or excluded from coverage on this policy?” It is a one-line answer, they have it in front of them, and it distinguishes a ghost policy, an officer exclusion and full coverage in a single reply. Then ask the second half — whether the policy covers employees at all, or whether it is a minimum-premium policy with no payroll behind it. Neither question is adversarial; both are things the sub’s own agent tells other GCs every week.

What to collect when a sub claims exemption

Split it by which situation you're really in:

The sub has workers' comp — collect the ACORD 25 showing statutory limits plus employers liability, and ask the sub's agent for the WC 00 03 13 waiver-of-subrogation endorsement naming you. The certificate reports the coverage; the endorsement grants the waiver.
The sub claims exemption — collect the actual state exemption certificate, confirm it's current, and get it in writing that they will notify you and obtain coverage before bringing on any employee. A verbal "I'm exempt" is not a document.
Either way — re-check at renewal and whenever the crew size changes. An exemption that was valid at bid time is worthless once the sub staffs up.

Copy-paste to the sub’s agent

Subject: Workers' comp proof needed — [Sub name] on [Project]

Hi [Agent name],

[Sub name] is working with us on [Project] and our subcontract requires workers' compensation coverage.

Please send:
1) A current ACORD 25 showing WC statutory limits and employers liability.
2) The waiver-of-subrogation endorsement, WC 00 03 13, showing it applies to [Your company].

If [Sub name] is instead operating under a state workers' comp exemption, please let me know and we'll need a copy of the state exemption certificate instead of the above.

Thanks,
[Your name], [Your company]

Tracking an exemption without losing it

An exemption is only good while it stays true, and it stops being true the day the sub hires someone. Sealinn holds the exemption certificate as the document that satisfies the requirement and keeps it in the same review cycle as everything else, so it can't quietly become the one file nobody revisits.

Where this comes from

Texas Department of Insurance, Division of Workers' Compensation — Employer information (Texas is the one opt-out state)
California Department of Industrial Relations — Division of Workers' Compensation FAQs — who must be covered
Internal Revenue Service — Independent contractor, self-employed, or employee

Keep the exemption in the review cycle.

Sealinn holds the exemption certificate as the document that satisfies the requirement, and re-checks it like every other file.

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