Workers’ Compensation in Washington: What Small Business Owners and Contractors Need to Know 

If you hire employees in Washington state, workers’ compensation insurance is not optional, and the system works differently here than in most other states. Washington operates a state-funded workers’ compensation program through the Department of Labor and Industries (L&I), which means private insurers cannot write standard workers’ compensation policies for most businesses in the state. Qualified large employers may apply to L&I to become certified self-insured, but self-insurance is typically only practical for larger organizations with substantial assets. Where you fall in that system, and what your obligations are, shapes every hiring and contracting decision you make.

How the L&I System Works

Most Washington employers are required to report hours worked and pay premiums directly to L&I, which pays medical and rehabilitation costs, as well as lost wages, for employees with work-related injuries or illnesses. Rates vary by industry classification and claims history. Construction trades, landscaping and other physically demanding fields carry higher premium rates than office-based businesses.

Who Is Exempt and Who Is Not

Sole proprietors with no employees are generally not required to carry workers’ compensation, but there are important nuances:

• Sole proprietors who work alone are excluded from mandatory coverage by statute, but may elect to obtain coverage voluntarily through L&I.
• The moment you hire a worker, including part-time help, coverage is required.
• Independent contractors you hire may still trigger L&I obligations if the work relationship meets certain criteria under Washington’s classification rules.
• Corporate officers who are also shareholders may be eligible to exclude themselves from coverage, but only if they meet specific criteria, including being a bona fide officer with substantial control in daily management. Officers of non-public corporations may qualify even if they perform manual labor, up to eight per company. Officers of public corporations must also be directors and cannot have manual labor as a primary duty. LLC managing members with substantial daily management control may also elect exclusion.

Get the Right Guidance

Workers’ compensation insurance is one layer of financial protection a business needs. Contact You Choose Insurance today to review your current coverage and confirm you are meeting your obligations before your next hire or project begins.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.