Last updated: October 2026

Workers comp ghost policy: what it is and who needs one

A ghost policy is what Minnesota law calls a “zero estimated exposure policy”: insurance obtained “after reporting the employer’s total estimated exposure is zero.”

A ghost policy exists to prove you have workers compensation insurance so that another business will hire you, even though you have no employees to insure. If you need workers comp for an LLC with no employees, or you are a sole proprietor or independent contractor who subs for general contractors, a ghost policy is probably the reason you are reading this page right now.

Someone told you that you need one. They are probably right.

Why ghost policies exist

General contractors carry their own workers comp policies. Those policies cover the GC's direct employees. When the GC hires a subcontractor, the sub's workers become a liability question. If the sub does not carry workers comp and one of the sub's workers gets injured on the job, the GC's policy may be responsible for the claim. In Florida the contractor is liable for compensation to a sub's employees unless the sub has secured it, and must require evidence of the sub's workers comp insurance.

At the end of the policy year, the GC's workers comp carrier runs a premium audit. New York's State Insurance Fund tells its policyholders they will be asked to produce every subcontractor certificate of insurance at that audit. For any sub whose coverage documents they cannot produce, the premium is recalculated to include that sub in their payroll. The GC then owes additional premium on money paid to uninsured subs, calculated at the applicable class code rate.

A GC who paid $80,000 to an uninsured sub working under a construction class code rated at $15 per $100 of payroll gets hit with a $12,000 audit bill. That is why GCs require every sub to carry workers comp, even subs with zero employees.

The tradeoff is straightforward: the sub pays for a ghost policy, or the sub does not get the contract.

What a ghost policy actually covers

Minnesota's Department of Labor and Industry also calls it an "if-any policy." The policy is real. The certificate of insurance is real.

Whether the owner can be left off the policy depends on the state. California counts corporate officers working for pay, and partnership or LLC members receiving wages, as employees, but lets an officer, a general partner or a managing member elect to be excluded.

If you hire even one employee, even a part timer, even a temporary helper for a single day, the zero estimate is no longer true. In Minnesota, the application asks you to attest that you have no employees or estimated payroll. It also asks you to attest that you will notify your carrier if you start having payroll expenses or hire employees.

The audit trap that catches ghost policyholders

Your workers comp premium is estimated at policy start and audited at year end. The carrier reviews your actual payroll for the year against what the policy assumed.

A ghost policy assumes zero payroll. If the audit reveals you paid anyone during the policy year, whether W-2 employees, 1099 subcontractors without their own coverage, or day laborers paid in cash, the carrier calculates premium on that payroll at your workers comp class code rate.

Workers comp for 1099 subs is still your problem. In Florida, a person paid by a construction contractor as a subcontractor counts as an employee unless the subcontractor has a valid exemption or its own coverage. A $30,000 payment to an uninsured sub at a $12 per $100 rate adds $3,600 to your audit bill.

States where ghost policies get complicated

In Texas, private employers can choose whether to carry workers comp, and the state does not require it in most cases. If you only work for clients who do not require proof of coverage, you may not need one.

Minnesota now puts rules on zero estimated exposure policies in construction. Beginning January 1, 2026, an employer providing building construction or improvement services that buys one must disclose it in writing to anyone it directly contracts with for that work, along with a copy of the policy. The business that receives the notice must keep it and the policy for three years.

California requires workers comp even for an employer with only one employee, and the state defines "employee" broadly. Since July 1, 2020, anyone who is an employee under Labor Code section 2775 is also an employee for workers comp purposes, so a worker you treat as an independent contractor counts if that section makes them an employee. California also tells roofers that they must carry workers comp even with no employees.

Florida requires workers comp for construction employers with one or more employees, and it counts a sole proprietor in the construction industry as an employee. A construction sole proprietor in Florida cannot exclude themselves from coverage. The construction exemption is open only to corporate officers, no more than three per corporation, each owning at least 10 percent of the stock. An LLC member owning at least 10 percent counts as an officer, and a subcontractor whose officer is exempt gives the contractor a copy of the certificate of exemption. The "ghost" policy must include the owner.

Common mistakes with ghost policies

Letting the policy lapse between renewals. A certificate of insurance shows active coverage as of the date of the certificate, which is why New York's State Insurance Fund tells policyholders to validate certificates periodically. If your policy expires March 1 and you do not renew until March 15, you have a two week gap.

Assuming the ghost policy covers you personally. If the policy excludes you, you have no coverage for your own injuries. If you fall off a ladder on a job site, your ghost policy pays nothing.

Using a ghost policy when you actually need a real policy. If you regularly hire helpers, even occasionally, a ghost policy is the wrong product. You need an active workers comp policy with reported payroll.

What to do this week

If a general contractor has asked you for proof of workers comp and you have no employees, call three insurance agents and ask for a ghost policy quote. Specify your state, your trade (which determines your class code), and that you have zero employees. Compare the quotes and pick the lowest price from a carrier rated A or better by AM Best.

If you already have a ghost policy and you hired anyone during the current policy year, call your carrier now and report the payroll before the audit finds it. Proactive reporting gives you time to budget for the additional premium. An audit surprise does not.

If you are unsure whether you need a ghost policy or a real policy, the test is simple: did anyone perform work for your business during the policy year other than you? If yes, you need a real policy. If the answer is genuinely no and will remain no, a ghost policy is the right product. Read the full workers comp guide if you are evaluating broader coverage options beyond a ghost policy.

This is not legal or financial advice. Consult a qualified professional for your specific situation.