--- title: "Navigating Workers Compensation and Contractors: What You Need to Know" description: Understand the essentials of workers compensation for contractors. Get the facts you need to navigate this complex system effectively. Read more now! image: https://www.redwood-insurance.com/hubfs/Foreman%20reading%20workers%20comp%20info.jpg --- [![Redwood Insurance Solutions Logo](https://www.redwood-insurance.com/hubfs/Branding/RIS%20Logo.svg)](https://www.redwood-insurance.com/) - [Business Insurance](https://www.redwood-insurance.com/business-insurance-michigan) - [Personal Insurance](https://www.redwood-insurance.com/personal-insurance) - [Blog](https://www.redwood-insurance.com/blog) - [Contact](https://www.redwood-insurance.com/contact) [Request a quote](https://www.redwood-insurance.com/request-quote) [Request a quote](https://www.redwood-insurance.com/request-quote) ## [Navigating Workers Compensation and Contractors: What You Need to Know](https://www.redwood-insurance.com/blog/navigating-workers-compensation-and-contractors-what-you-need-to-know) Workers Compensation and Contractors: A Simple Guide Workers compensation insurance pays for medical bills and lost wages when an employee gets hurt on the job. It also protects your business from most lawsuits over ... by Bennett Allen on September 28, 2026 [Read More →](https://www.redwood-insurance.com/blog/navigating-workers-compensation-and-contractors-what-you-need-to-know#blog-content-section) [![](https://www.redwood-insurance.com/hubfs/Foreman%20reading%20workers%20comp%20info.jpg)](https://www.redwood-insurance.com/blog/navigating-workers-compensation-and-contractors-what-you-need-to-know) ## Workers Compensation and Contractors: A Simple Guide Workers compensation insurance pays for medical bills and lost wages when an employee gets hurt on the job. It also protects your business from most lawsuits over that injury. If you run a contracting business in Michigan, you need to know who must be covered, how much it costs, and what happens if you get it wrong. Redwood Insurance Solutions is a Michigan independent agency that helps contractors sort this out. ### Do You Need Workers' Comp in Michigan? Michigan's Workers' Disability Compensation Act (WDCA) says workers comp insurance requirements are shaped by state laws, and most states require coverage when a business has employees, if either of these is true: 1. You have **three or more employees** at one time, including part-timers. 2. You have **one or more employees** who work 35+ hours a week for 13+ weeks in a 52-week period. The second rule catches a lot of small contractors. You can have one full-time helper and still be required to carry coverage. Farms and household employers have their own separate rules. Strict rules often apply in the construction industry in other states, and some require businesses to carry workers compensation from the first employee hired. **Who can be left out?** - Sole proprietors with no employees - Partners and corporate officers who own 10% or more - LLC members who own 10% or more If you qualify for an exclusion, file a **WC-337 Notice of Exclusion** with the state. Keep your records handy for audits. Every state has unique workers' compensation laws, so don't assume what worked somewhere else applies here. #### What Happens If You Skip It Going without required coverage can trigger civil penalties and criminal consequences under [MCL 418.641](https://law.justia.com/codes/michigan/chapter-418/statute-act-317-of-1969/division-317-1969-6/section-418-641/). That means: - A fine of up to $1,000, up to 6 months in jail, or both - Every day without coverage counts as its own offense - A court can stop you from hiring anyone until you're covered - An injured worker can sue you in court for damages Uninsured employers can also face added liability if an injured employee files a workers compensation claim outside the normal system. ### Employee or Independent Contractor? Calling someone a "1099 worker" doesn't make them a contractor. Michigan looks at how the work really happens. The real question is whether an employment relationship or employer employee relationship exists under state law. If the person is an employee, you need to cover them, even if your contract says otherwise. For injuries on or after January 1, 2013, Michigan uses the **IRS 20-factor test**. Other states use different standards, and in some places an independent contractor must meet as many as nine criteria to remain not an employee for workers compensation coverage. No single factor decides it, but a few questions carry a lot of weight: - **Who controls the work?** Do you set when they start and stop, or tell them how the job gets done? - **Do they work for other clients?** Or only for you? - **Who pays for the tools and equipment?** Do they use own tools, bring own equipment, and show a significant investment in the business? - **How are they paid?** By the hour, or by the job? Signs of an independent business can also include performing services for multiple clients, recurring business liabilities, a filed business tax return with the internal revenue service, a federal employer identification number, and any required operating authority or licenses. The more you control the person, the more likely they're an employee. If you withhold federal income tax from someone, Michigan presumes they're an employee. **Protect yourself:** Get a signed W-9, proof of their business (license or LLC papers), a written agreement, proof of own coverage or own workers compensation coverage, and a certificate showing a workers compensation insurance policy or compensation policy when required. If you get it wrong, an auditor can add their payroll to your workers compensation policy and bill you back premiums. Misclassification can lead to back premiums, liability, lawsuits, and workers compensation benefits being owed if the worker is later treated as an employee. ### If You Hire Subcontractors If a subcontractor doesn't have workers' comp and their worker gets hurt, the hiring company or hiring business may be responsible. Michigan law can make the general contractor liable if a subcontractor lacks insurance coverage, including workers compensation benefits tied to work related injuries. Insurance companies also add uninsured subcontractor payroll to your audit. Simple ways to protect yourself: - Before work begins, get a valid Certificate of Insurance (COI) and proof of a current workers' compensation policy from every sub; independent contractors must often provide proof of insurance - Don't rely only on the paper COI—verify the policy directly with the insurance company or insurance carriers and confirm it is active for the job dates - Put insurance rules and indemnification (repayment) terms in your written contract - Have a lawyer review contracts when you have several layers of subs If a sub has hired employees, their policy must actually cover those workers; if you're unsure, have legal counsel review the file. ### How Much Does It Cost? Your premium comes from a simple formula: **Rate × (Payroll ÷ 100) × Experience Mod = Premium** - **Rate:** Set by your class code, which is based on the type of work your crew does. - **Payroll:** What you pay your employees, but annual audits compare estimated payroll to actual payroll and can adjust premium based on the service performed and who performed it. - **Experience mod:** A score based on your last three years of claims. A 1.0 is average. A 0.8 saves you 20%. A 1.2 costs you 20% more. Here are 2026 Michigan assigned-risk rates from CAOM (per $100 of payroll). Rates in the regular market can be different. | Risk Level | Trade (Class Code) | Rate per $100 | | --- | --- | --- | | Lower | Electrical wiring (5190) | $1.23 | | Lower | Landscaping (0042) | $1.39 | | Lower | Plumbing (5183) | $1.51 | | Middle | Painting (5474) | $2.78 | | Middle | Carpentry (5403) | $2.96 | | Higher | Iron or steel erection (5040) | $4.53 | | Higher | Roofing (5551) | $6.62 | The middle rate across electrical, landscaping, plumbing, and painting is about **$1.45 per $100 of payroll**. Michigan rates dropped about **9.3%** on average on January 1, 2026. **Watch your class codes.** If some of your crew does roofing and some does carpentry, split payroll by code. Putting everyone under the highest code can raise your bill a lot. Misclassified contractors or uninsured subs can also be pulled into payroll at audit and raise workers compensation insurance costs unexpectedly. ### If a Worker Gets Hurt 1. The worker tells you about the injury. You make sure they get medical care. The **workers compensation system** is designed to **protect workers** when employees suffer work-related injuries on the job, and **workers compensation insurance** covers employees for work-related injuries under your **workers compensation policy**. 2. You report the claim to your insurance company and the state on time. 3. If you don't report it, the worker can file a **WC-117** form on their own. 4. **Workers compensation benefits** can include **medical benefits** and replace part of lost wages for an **injured employee**. In Michigan, benefits pay **80% of after-tax weekly wages** after a 7-day waiting period if the worker stays off the job. 5. The policy pays **medical expenses** and **medical costs** that are reasonable and needed for the injury. **Health insurance** usually does not handle job-related injuries the same way. A **return-to-work plan** helps a lot. Light-duty work keeps wage-loss costs down and can help employees receive **workers compensation benefits** while protecting your experience mod. ### Ways to Keep Your Costs Down - Write down a safety plan for your trade - Do regular jobsite safety checks - Train your crew on PPE, fall protection, and reporting hazards - Report injuries fast and offer light duty when you can - Review your class codes and payroll splits at every renewal Safety work pays off slowly. Your mod uses past claims, so expect to see the savings over two to three years. ### Other Insurance Contractors Need Workers' comp only covers your own employees. Most contractors also need these policies as part of a broader **business insurance** plan for **small business owners**: - **General liability insurance** helps cover bodily injury, property damage, and **advertising injury** claims that workers comp does not cover - **Commercial auto** for work vehicles - **Umbrella coverage** for big claims that go past your other limits - **Cyber coverage** if you store customer or payroll data online ### Quick Answers **Do 1099 workers need to be covered?** Maybe. The label doesn't matter. If a worker meets the employee test above, they count as your employee. In some cases, contract labor may still qualify for workers comp benefits if the facts show an employee relationship, even though independent contractors are generally responsible for their own coverage. **Do I need workers' comp if I work alone?** Not by law. Some states allow sole proprietors to opt out, while others let them voluntarily purchase workers compensation coverage for themselves. Many general contractors and property owners ask for proof of coverage anyway. **What if a subcontractor can't give me a COI?** Don't let them start. If they work anyway, expect their payroll to show up on your audit. ### Let's Talk: Schedule a Meeting with Redwood Workers' comp rules can be confusing. The best way to know where you stand is to talk it through with a qualified insurance agent who understands Michigan workers compensation and construction rules, including state regulations affecting contractors. [Schedule a meeting with Redwood](https://www.redwood-insurance.com/contact) and we'll review: - Your current operations and work exposures, plus your current workers comp policy, to make sure you're not missing anything and that it aligns with contractor compliance requirements. - Whether your class codes and payroll splits are right - Your past claims and audit your mod We work with Michigan contractors every day. Bring your current policy and payroll numbers, and we'll show you how we can help. **Bennett Allen** [![](https://hub.nexford.org/hubfs/arrow-left-circle.svg) BACK TO BLOG PAGE](https://www.redwood-insurance.com/blog) - Share this article: - - - - Copy to clipboard ### Related blogs ![](https://images.surferseo.art/906f327f-6913-497f-b472-746eea0322ae.png) #### [Essential Guide to Small Company Liability Insurance for Your Business](https://www.redwood-insurance.com/blog/essential-guide-to-small-company-liability-insurance-for-your-business) Small Company Liability Insurance: Practical Guide for Michigan Business Owners If you run a small ... [Read more   →](https://www.redwood-insurance.com/blog/essential-guide-to-small-company-liability-insurance-for-your-business) ![](https://images.surferseo.art/cdb956d1-dbef-4a24-91b2-3e5135d21f86.png) #### [Discover essential insurance types for commercial property to protect your investment. 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