Last updated: March 2026

Workers comp ghost policy: what it is, what it costs, who needs one

A ghost policy costs $500 to $1,200 a year and covers exactly zero employees. That is the point. It 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. Carriers know this, and they charge the GC accordingly.

At the end of the policy year, the GC's workers comp carrier runs an audit. The carrier looks at every subcontractor the GC used during the year. For any sub that cannot produce a certificate of insurance showing active workers comp coverage, the carrier adds that sub's payments to the GC's auditable 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 National Council on Compensation Insurance (NCCI) sets the class codes and rate structures that drive these audit calculations in most states.

The $12,000 audit bill lands on the GC, not the sub, which is exactly why the GC will never hire an uninsured sub twice.

The tradeoff is straightforward: the sub pays $500 to $1,200 per year for a ghost policy, or the sub does not get the contract. For most subs, the policy pays for itself with the first job.

What a ghost policy actually covers

Nothing. A ghost policy is a minimum premium workers comp policy with no covered employees. The policy is real. The certificate of insurance is real. The carrier is a real, licensed insurance company. But because no employees are listed on the policy, no one is covered for workplace injuries.

The owner is typically excluded. In most states, sole proprietors and LLC members can elect to exclude themselves from workers comp coverage. The ghost policy is written with the owner exclusion in place, which is what drives the premium to the minimum.

When this is wrong: if you hire even one employee, even a part timer, even a temporary helper for a single day, the ghost policy does not cover them. You now need a real workers comp policy with actual payroll reported and actual premium calculated. A ghost policy that quietly turns into an employer policy without updating the carrier creates an audit liability and a coverage gap that could leave an injured worker with no benefits and you with a lawsuit.

When this is also wrong: some states do not allow owner exclusions. In states that require all workers including business owners to be covered (like parts of the construction industry in New York and California), a true ghost policy with zero covered individuals may not satisfy the legal requirement. The policy must include the owner, which raises the premium above the ghost policy minimum.

What it costs and what drives the price

Ghost policy premiums range from $500 to $1,200 per year in most states. A ghost policy is really just a minimum premium workers comp policy, and the variation depends on three factors: your state's minimum premium requirements, your workers comp class code, and the carrier.

Every state sets a minimum annual premium for workers comp policies. In Florida, the minimum is around $500. In New York, it can exceed $1,000. California falls in between. The minimum premium is the floor. You cannot pay less regardless of how little payroll you report.

Your class code matters because it determines the rate per $100 of payroll. A ghost policy reports zero payroll, so the rate does not directly affect your premium. But carriers that write ghost policies in high risk class codes sometimes charge above the state minimum to account for the higher exposure if you fail to report employees you later hire.

Some carriers specialize in ghost policies and offer them as a standard product. Others treat them as unusual and price accordingly. Shopping across three or four carriers can save $200 to $400 on the same coverage.

A ghost policy is the only insurance product where you pay real money for zero coverage and it is still a good deal.

The tradeoff between pay as you go workers comp and a traditional ghost policy matters if you expect your situation to change. Pay as you go policies adjust monthly based on actual payroll. If you start as a ghost and hire someone in June, a pay as you go policy adapts automatically. A traditional ghost policy requires a midterm endorsement, which some carriers handle smoothly and others turn into a weeks long process that leaves you without an updated certificate when you need it for a job.

The audit trap that catches ghost policyholders

Your workers comp premium is estimated at policy start and audited at year end. This is true for every workers comp policy, including ghost policies. The carrier reviews your actual payroll for the year against what the policy assumed. Your state's workers compensation program sets the rules for how audits are conducted and what counts as reportable payroll.

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. The audit bill arrives after your policy has already renewed, so you are locked into the next year's premium at the higher rate before you even see the adjustment.

I have seen ghost policyholders receive audit bills of $3,000 to $8,000 because they hired two or three helpers during the summer and did not report the payroll. The carrier found the discrepancy through cross referencing 1099 filings or through a tip from the GC's audit.

When this is wrong: owners who assume workers comp for 1099 subs is not their problem. In many states, uninsured subcontractors are treated as your employees for premium calculation purposes. If you hire a 1099 worker who does not carry their own workers comp, your carrier adds that sub's payments to your auditable payroll. 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

Texas does not require employers to carry workers comp at all. A ghost policy in Texas is purely a contractual requirement from the GC, not a state mandate. If you only work for clients who do not require proof of coverage, you may not need one. In some states, sole proprietors can file a workers comp waiver or exemption instead of purchasing a ghost policy, but a waiver will not satisfy a GC's insurance requirement because it produces no certificate of insurance.

Ohio, North Dakota, Washington, and Wyoming operate monopolistic state fund systems. You cannot buy workers comp from a private carrier. Ghost policies in these states must be obtained through the state fund, and the process and pricing differ from the private market.

California requires workers comp for all employers with one or more employees, and the state defines "employee" broadly. Independent contractors who are reclassified as employees under AB 5 may trigger a workers comp requirement that a ghost policy does not satisfy.

Florida requires workers comp for construction employers with one or more employees, including the owner. A construction sole proprietor in Florida cannot exclude themselves from coverage the way they can in many other states. The "ghost" policy must include the owner, pushing the premium to $1,500 or more depending on the class code.

Every state's workers comp exemption rules are different, and assuming your state works like the last one will cost you money.

Common mistakes with ghost policies

Letting the policy lapse between renewals. A certificate of insurance shows the policy effective dates. If your policy expires March 1 and you do not renew until March 15, you have a two week gap. Any GC who checks your certificate during that gap will refuse to let you on the job site. Worse, if a claim occurs during the gap, you have zero coverage and full personal liability.

Assuming the ghost policy covers you personally. Unless you specifically elected to include yourself (and paid the additional premium), the owner exclusion means you have no coverage for your own injuries. If you fall off a ladder on a job site, your ghost policy pays nothing. Your health insurance may deny the claim because it is a workplace injury. You are left paying out of pocket for a work related injury.

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. The premium will be higher, but the audit bill on a ghost policy that should have been a real policy will be higher still, plus you will face penalties in states that require coverage for all employees.

Not shopping the policy. Ghost policies are commodity products. The certificate looks identical regardless of carrier. The only variables are price and ease of renewal. Paying $1,100 for a ghost policy when a different carrier offers the same coverage for $600 is $500 per year wasted on a product that provides no actual coverage.

When a ghost policy is the wrong product entirely: subcontractors who regularly hire day laborers, temporary helpers, or apprentices even for short jobs. If you hire anyone during the policy year, the ghost policy fails its purpose and the year-end audit creates a bill larger than a real policy would have cost from day one. A sub who hired helpers on three jobs last year needs a standard workers comp policy with reported payroll, not a ghost policy they hope nobody audits.

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 with the owner excluded. 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.

Written by a Certified Payroll Professional with 30 years of experience.

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