Independent Contractor vs. Employee – Why It Matters

You are the owner of a small business.  You realize you need help running your business.  You hire someone to help you with the book-keeping, billing, and to send past due notices.  Should the person you hire be considered an employee or an independent contractor?  Does it matter?

Legal Liability

Legally speaking, it does matter.  Businesses that wrongly categorize independent contractors and employees do so at their peril.  Failing to correctly classify a worker as an employee instead of an independent contractor could subject the business to fines, penalties, and even lawsuits.  For example, a class action lawsuit was filed against Uber by drivers who contend that they were misclassified as independent contractors rather than employees, creating substantial potential liability for the company.  Thus, it is vital for a business to categorize those who work for them properly.

Tax Differences

An independent contractor is generally considered self-employed.  As such, they are not covered by labor laws.  Businesses do not have to withhold or pay taxes on the payments they make to independent contractors.  Instead, payments of $600 or more per year that are made to independent contractors are reported on a Form 1099.  Typically, outside accounts, lawyers, and other professionals or specialists retained by businesses to work on discrete projects are considered independent contractors.

In comparison, an employee is someone who works for and is under the control of the business that hired him or her.  A company must pay Social Security and Medicare taxes, as well as unemployment tax, on an employee’s wages.  The business must report all wages paid to the employee per year on a W-2 form.  An employee is also protected by state and federal law, such as minimum wage, overtime pay, and discrimination laws.

Factors to Consider

Whether a worker is an employee or an independent contractor depends on the circumstances.  In making this determination, the independence of the worker and the degree of control the business has over the worker are considered, including the following:

* Does the business supervise and control the worker’s work schedule?
Example:  A worker who has to show up to work at 9:00 a.m. and leave at 5:00 p.m. is likely to be an employee.

* Does the business control what the worker does and how the work is conducted?
Example:  Restaurant waiters who are required to perform their work in a certain way are likely to be employees.

* Does the business provide the tools and supplies necessary for the worker to accomplish the task?
Example:  Electricians who provide their own tools and supplies to complete electrical projects are likely to be independent contractors.

* Is the work performed by the worker an integral part of the business?
Example:  Factory workers who assemble auto parts for a car manufacturer are likely to be employees.

* Does the business provide training?
Example:  Sales clerks who receive training from a business on how to accept payments from customers are likely to be an employee.

* Can the worker work for other companies?
Example:  An IT consultant retained by different companies to help them troubleshoot IT issues is likely to be an independent contractor.

* Is the worker paid on a project basis?
Example:  A roofing contractor who is paid a fixed amount after completing the roofing project is likely to be an independent contractor.

How to Avoid Liability

Unfortunately, determining whether a worker is an independent contractor versus an employee is not black and white; it depends on the weighing of many factors.  One of the ways to protect your business from liability for misclassifying a worker is with an independent contractor agreement.  The independent contractor agreement should expressly state that the person doing the work is an independent contractor, clarify the relationship between the business and the independent contractor, and specify the terms between them.  Although an independent contractor agreement does not provide complete protection from liability for a company, it is a factor that weighs in favor of finding that the worker is an independent contractor.  For an independent contractor agreement template, please click here.

The Benefits of a General Release

What can you do when faced with a potential legal claim against you?  Even if the claim is weak, the costs of defending a lawsuit may not be worth the time, effort, and expense.  Contesting a lawsuit will not only involve attorneys’ fees, court costs, and other expenses, but there is no guarantee as to the outcome.  In that situation, it might make sense for you to offer a certain amount of money to the claimant in exchange for a release of all potential claims.  To do this, you could use a general release.

What Is a General Release?

A general release is a type of contractual agreement involving one party giving up the right to sue or bring claims against another party in exchange for something of value.  In legal jargon, the party releasing the claims is called the releasor, and the party receiving the released claims is called the releasee.  The value exchanged, called consideration, is usually a sum of money.  To be legally valid, a general release must have consideration.  The consideration does not have to be a large sum; it can be a nominal amount.

What Terms Should be Included?

The general release should include some essential terms.  First, the legal names of the releasor and the releasee should be in the agreement.  The releasor and releasee do not have to be natural persons; instead, they can be business entities or organizations.  If you are the releasee, you will want a broad release that requires the releasor to surrender all potential claims against you, even claims that the releasor might not know to exist at the time of the release.  Section 1542 of the California Civil Code provides that a general release only surrenders the claims that the releasor knows or suspects to exist in his favor.  Thus, for a releasee to obtain a general release that includes unknown or undiscovered claims in California, the releasor must expressly agree to waive Section 1542 of the California Civil Code in the release agreement.  To adequately protect against all potential claims, the general release should also extend to others who might be able to raise claims on behalf of the releasor.  Such persons may include the releasor’s heirs or the executor of the releasor’s estate.

Other Considerations

The parties may wish to include a confidentiality clause in the general release to keep the terms of the settlement confidential.  The confidentiality clause, however, should permit the settlement to be disclosed to tax preparers, accountants, legal counsel, and financial advisors, as well as other persons as may be required by law.  The general release should also state that it contains the entire agreement between the parties concerning the matter and that it cannot be changed orally.

Benefits of a General Release

A general release is an effective way of limiting liability from potential legal claims by offering the releasor a certain sum in return.  It puts the dispute to rest without going through the courts, arbitration, or mediation.  It also creates certainty because each party knows what each is receiving and giving up from the agreement.  The general release may be negotiated amicably by the parties, which can be important if they have an ongoing relationship, such as a vendor-customer relationship or if the parties are neighbors or social acquaintances.  For a California general release template, click here.

Work Permit (Employment Certificate) Requirements for Minors by State

Many states require work permits (also known as employment certificates) and sometimes proof-of-age certificates for a minor to be employed.  Employers who fail to comply with the requirements can be assessed a monetary penalty.  These state-by-state requirements for minors are listed below.

Alabama
Work permit required for minors under age18 – obtain from school.
No minor under age 18 may be employed in tunnels or excavations with depths exceeding four feet; minors age 16 or older may be issued a permit to work at excavation sites less than four feet in depth.

Alaska
Work permit required for minors under age 17 – obtain from Labor Department.

Arizona
No work permit required for minors.

Arkansas
Work permit required for minors under age 16 – obtain from Labor Department.

California
Work permit required for minors under age 18 who are enrolled in school.
If minor is employed in entertainment industry, obtain work permit from Labor Department.
In all other industries, obtain work permit from school.

Colorado
Work permit required for minors under age 16 who work during school hours – obtain from school.

Connecticut
Work permit required for minors under age 16 – obtain from school.
Age certification required for minors ages 16 and 17 – obtain from school.

Delaware
Work permit required for minors under age 18 – obtain from school.

District of Columbia
Work permit required for minors under age 18 – obtain from school.

Florida
Work permits are not required. However, employers of a minor must obtain and keep on record proof of the child’s age. An age certificate from the district school board is one way of satisfying the requirement.

Georgia
Work permit required for minors under age 16 – obtain from school.

Hawaii
Work permit required for minors under age 16 – obtain from the Labor Department.
Age certification required for minors ages 16 and 17 – obtain from the Labor Department.

Idaho
No work permit required for minors.

Illinois
Work permit required for minors under age 16 – obtain from school.

Indiana
Work permit required for minors under age 18 – obtain from school.

Iowa
Work permit required for minors under age 16 – obtain from Iowa Workforce Development Department or from school.

Kansas
Minors generally are allowed to work without a work permit.  However, minors under age 16 who are not enrolled in secondary school must obtain a work permit.

Kentucky
No work permit required for minors.  However, employers of children under age 18 must maintain proof of age.

Louisiana
Work permit required for minors under age 18 – obtain from school.

Maine
Work permit required for minors under age 16 – obtain from Labor Department.

Maryland
Work permit required for minors under age 18 – obtain from Labor Department.

Massachusetts
Work permit required for minors under age 18 – obtain from school.

Michigan
Work permit required for minors under age 18 – obtain from Michigan Department of Education.
Work permit not required for minors under age 16 who have completed the requirements for high school graduation or have obtained a high school equivalency certificate.
Also, this is not required for minors under age 17 who have passed the general educational development (GED) test.

Minnesota
Work permit required for minors under age 16 who work during school hours – obtain from school.  Employers must also obtain and keep on record proof of the child’s age.

Mississippi
Work permit required for minors under age 16 employed in canneries, workshops, and factories – obtain from school.

Missouri
Work permit required for minors under age 16 – obtain from school.

Montana
No work permit required for minors.

Nebraska
Work permit required for minors under age 16 – obtain from school.

Nevada
Minors under age 14 must have written permission from district judge to work.
No work permit required for minors over age 14.

New Hampshire
Work permit required for minors under age 16 – obtain from school.
Employers must maintain on file a signed, written document from the parent or legal guardian authorizing the employment.

New Jersey
Work permit required for minors under age 18 – obtain from school.

New Mexico
Work permit required for minors under age 16 – obtain from school or Labor Department.

New York
Work permit required for minors under age 18.  If minor is a child performer, work permit is obtained from the Labor Department.  Otherwise, work permit is obtained from school.

North Carolina
Work permit required for minors under age 18 – obtain from Labor Department.

Ohio
Work permit required for minors under age 16 who work at any time and for minors ages 17 who work during school term – obtain from school.

Oklahoma
Work permit and age certificates required for minors under age 16 – obtain from school.

Oregon
No work permit required for minors.  However, employers are required to apply for annual certificates to employ the minors.

Pennsylvania
Work permit required for minors under age 18 – obtain from school.

Puerto Rico
Work permit required for minors under age 18 – obtain from Labor Department.

Rhode Island
Work permit required for minors under age 16 – obtain from school.
Age certificate required for minors ages 16 and 17 – obtain from school.

South Carolina
No work permit required for minors.

South Dakota
No work permit required for minors.

Tennessee
No work permit required for minors.  However, employers of minors under age 18 must obtain and keep on file proof of the minor’s age.

Texas
No work permit required for minors.

Utah
No work permit required for minors.

Vermont
Work permit required for minors under age 16 who work during school hours.

Virginia
Work permit required for minors under age 16 – obtain from Labor Department.
For minors ages 14 and 15, age certificates are required – obtain from Labor Department.

Washington
Work permit required for minors under age 18 – obtain from Labor Department.

West Virginia
Work permit required for minors under age 16 – obtain from school.

Wisconsin
Work permit required for minors under age 17 – obtain from volunteer permit officers who are representatives of the Department of Workforce Development.  Employers of children under age 16 must maintain a proof of age.

Wyoming
No work permit required for minors.

Will Requirements by State

The laws pertaining to what is necessary for will documents to be valid vary from state to state. As such, it is important that your will is drafted based on the laws of your state so that your assets will be distributed according to your wishes after death. Below are the state-by-state requirements for creating a valid will.

 

Code Section

Minimum Age to Make a Will Witnesses

Accepts Holographic (Handwritten) Wills?

Alabama

Alabama Code Title 43

18 Signed by testator in presence of 2 witnesses N

Alaska

13.12.501, et seq. 18 Signed by at least 2 witnesses within a reasonable time after witnessing testator’s signing of will or the testator’s acknowledgment of signature or the will Y

(no witnesses required)

Arizona 14-2501, et seq. 18 Signed by 2 witnesses within a reasonable time after witnessing testator’s acknowledgment of signature or of will

Y

(no witnesses required)

Arkansas

28-25-101, et seq. 18 Signed by testator in presence of 2 witnesses Y

(need 3 credible disinterested witnesses to handwriting)

California

Prob. §§6100, et seq. 18 Signed by testator in presence of at least 2 witnesses who witness the signing of will or the testator’s acknowledgment

Y

(no witnesses required)

Colorado 15-11-501, et seq. 18 Signed by at least 2 witnesses within a reasonable time after witnessing either the signing or testator’s acknowledgment of signature or of will

Y

(no witnesses required)

Connecticut

Conn. Gen. Statutes Chapter 802a 18 Signed by testator in presence of 2 witnesses N

Delaware

Tit. 12 §201, et seq. 18 Attested and subscribed in testator’s presence by 2 or more witnesses N

District of Columbia

18-102, et seq. 18 Attested and subscribed in testator’s presence by 2 witnesses

Y

(requires 2 witnesses)

Florida §§732.501, et seq. 18 Signed by testator in presence of 2 witnesses

N

Georgia §§53-4-10, et seq. 14 Attested and subscribed in testator’s presence by 2 or more witnesses

N

Hawaii

Hawaii Revised Statutes 560-1, et seq. 18 Signed by 2 witnesses within a reasonable time after witnessing testator’s signing of will or testator’s acknowledgment of that signature Y

(no witnesses required)

Idaho

§§15-2-501, et seq. 18 Signed by 2 witnesses who witness the signing of the will or the testator’s acknowledgement of that signature or will

Y

(no witnesses required)

Illinois 755 ILCS 5/4-1, et seq. 18 Attested in presence of testator by 2 or more witnesses

N

Indiana §§29-1-5-1, et seq. 18 Signed and acknowledged in presence of two or more witnesses

N

Iowa

§§633.264, et seq. At least 18 or married Witnessed by 2 witnesses who must sign in presence of testator and each other N

Kansas

Kansas Statutes Chapter 59 At least 18 or married Witnessed by 2 or more witnesses who witnessed the testator sign the will or heard him acknowledge the will

N

Kentucky Kentucky Revised Statutes Chapter 394 18 Signed by testator and acknowledged in the presence of at least 2 witnesses

Y

(no witnesses required)

Louisiana

Louisiana Civil Code 1570, et seq. 16 Signed by 2 or more witnesses and by a notary Y

(no witnesses required but must be signed and dated)

Maine

Tit. 18-A §§2-501, et seq. 18 Signed by at least 2 witnesses who witnessed either the signing or testator’s acknowledgment of signature or of will

Y

(no witnesses required)

Maryland Estates & Trusts §§4-101, et seq. 18 Attested and signed in the presence of testator by 2 or more witnesses

Y, if made outside U.S. by person serving in U.S. armed forces (no witnesses required) but is void one year after testator’s discharge

Massachusetts

Mass. Gen. Laws Chapters 190B and 191 18 Signed by 2 or more witnesses who witnessed the signing or testator’s acknowledgment or signature or of will N
Michigan MCL §§700.2501, et seq. 18 Signed by 2 or more witnesses who witnessed either the signing or testator’s acknowledgment of signature or of will

Y

(no witnesses required)

Minnesota

MN Statutes §§524, et seq. 18 Signed by 2 or more witnesses within a reasonable time after witnessing either the signing or testator’s acknowledgment of signature or of will N

Mississippi

Miss. Code Title 91: Trusts & Estates, Chapter 5 18 Signed by testator and witnessed by 2 or more witnesses who attest to the will in the testator’s presence Y, if it is wholly written, signed and dated by testator

Missouri

474.310, et seq. 18 Attested by 2 or more witnesses subscribing their names to the will in presence of testator N
Montana 72-2-521, et seq. 18 Signed by 2 witnesses within a reasonable time after witnessing the testator’s signature or acknowledgment of will

Y

(no witnesses required)

Nebraska

§§30-2326, et seq. 19 Signed by 2 or more witnesses who either witnessed the signing or testator’s acknowledgment of signature or of will

Y

(no witnesses required)

Nevada

Nevada Revised Statutes Chapter 133 18 Signed by 2 or more witnesses in the presence of the testator Y

(no witnesses required)

New Hampshire

551:1, et seq. At least 18 or married Attested and subscribed in testator’s presence and at the request of testator by two or more witnesses

N

New Jersey 3B:3-1, et. seq. 18 Signed by at least 2 witnesses who witnessed the signing or testator’s acknowledgment of the signature or of the will

Y

(no witnesses required)

New Mexico

New Mexico Statutes 45-2-501, et seq. 18 Signed by at least 2 or more witnesses who sign in presence of testator and each other N

New York

Estates, Powers & Trusts, §§3-1.1, et seq. 18 Signed by testator and acknowledged in presence of 2 attesting witnesses

Y, but only if made by members of armed services during an armed conflict

(no witnesses required)

North Carolina §31-1, et seq. 18 Attested by 2 or more witnesses who sign will in presence of testator

Y, if written entirely in testator’s handwriting, subscribed by testator, and found among testator’s valuable papers or in safe deposit box or other safe place or with some person under authority for safe keeping

(no witnesses required)

North Dakota

30.1-08-01, et seq. 18 Signed by at least 2 witnesses within a reasonable time after witnessing either the signing of the will or the testator’s acknowledgment of signature or of will Y

(no witnesses required)

Ohio 2107.02, et seq. 18 Attested and subscribed in presence of testator by at least 2 witnesses who witnessed the testator subscribe or heard him acknowledge his signature

Y

(must be attested and subscribed in presence of testator by 2 or more witnesses)

Oklahoma

84 §41, et seq. 18 Attested by 2 witnesses who signed in the presence of testator at the end of the will Y

(no witnesses required)

Oregon

Oregon Revised Statutes Chapter 1112 At least 18 or married Signed by at least 2 witnesses who witnessed the testator sign the will or heard the testator acknowledge his signature on the will

N

Pennsylvania Tit. 20 §2501, et seq. 18 Signed by 2 witnesses in the presence of the testator

N

Rhode Island

33-5-2, et seq. 18 Signed and acknowledged by testator before 2 or more witnesses, who also must attest and subscribe will in presence of testator N, unless testator is soldier or airman in actual military service
South Carolina South Carolina Code of Laws 62-2-501 18 Signed by 2 or more witnesses who witnessed either the signing of the will or the testator’s acknowledgment of signature or of will

N

South Dakota

29A-2-501, et seq. 18 Signed by 2 or more witnesses in the testator’s presence who witnessed either the signing of the will or the testator’s acknowledgment of that signature Y

(no witnesses required)

Tennessee 32-1-102, et seq. 18 Signed by 2 or more witnesses in the presence of testator and each other

Y

(but testator’s handwriting must be proved by 2 witnesses)

Texas

Probate Code §57, et seq. 18 Signed by 2 or more witnesses over age of 14 subscribing names in presence of testator Y

(no witnesses required)

Utah Utah Code 75-1-101, et seq. 18 Signed by 2 or more witnesses who sign within a reasonable time after witnessing the testator’s signing or the testator’s acknowledgment of that signature or of the will

Y

(no witnesses required)

Vermont

Tit. 14 §1, et seq. 18 Attested and subscribed by at least 2 witnesses in presence of testator and in presence of each other N
Virginia 64.1-46, et seq. 18 Subscribed by 2 or more witnesses in the presence of testator and of each other

Y

(no witnesses necessary)

Washington

11.12.010, et seq. 18 Attested and subscribed by at least 2 witnesses in the presence of the testator N
West Virginia 41-1-1 18 Signed by 2 witnesses in the presence of the testator and each other

Y

(no witnesses necessary)

Wisconsin

853.01, et seq. 18 Signed by 2 or more witnesses in the presence of the testator and each other N
Wyoming 2-6-101, et seq. 18 Signed by 2 or more witnesses who witnessed the signing of the will and who signed in the presence of the testator and of each other

Y

(no witnesses necessary)

Corporate Bylaws Requirements by State

For a business to be incorporated, it has to have articles of incorporation – a document filed with the secretary of state which effectively gives “birth” to the corporation.  In addition, many states also require corporations to have bylaws – a document describing how the corporation is organized and operated.  Bylaws are not required to be filed in any state.  However, a corporation may be required under state law to create and maintain bylaws in their corporate files.  Even if your state does not require corporations to have bylaws, it is often a good idea to have them to prevent future disputes and misunderstandings among the owners of the business.  Below is a list of bylaw requirements by state.

Corporate Bylaws Required

Alabama
Arizona
Arkansas
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kentucky
Maine
Maryland
Massachusetts
Mississippi
Montana
Nebraska
New Hampshire
New Jersey
New Mexico
New York
North Carolina
Oklahoma
Oregon
South Carolina
South Dakota
Tennessee
Texas
Vermont
Virginia
Washington
West Virginia
Wyoming

Corporate Bylaws NOT Required

Alaska
California
Colorado
Kansas
Louisiana
Michigan
Minnesota
Missouri
Nevada
North Dakota
Ohio
Pennsylvania
Rhode Island
Utah
Wisconsin

Workers Compensation Requirements by State

Most states require businesses to have workers compensation insurance to cover employees who become injured at work.  Workers compensation insurance does two things.  First, it allows the injured employee to receive medical care and compensation for a portion of the income lost.  Second, it protects employers from lawsuits by employees who suffer injuries during work.  The laws regarding workers compensation can be complicated and vary from state to state.  Below are the workers compensation requirements for each state.

 

(Current as of 2018)

ALABAMA
Requirements:
Businesses with five or more employees must carry coverage. With corporations or LLCs, officers and members are counted as employees. If there are more than four employees, workers’ compensation insurance is required.
Exceptions:
Coverage is not required for businesses with four or fewer regular employees (full-time or part-time), other than businesses constructing or assisting on-site in the construction of new single-family, detached residential dwellings. Employers of household/domestic employees, farm laborers, or casual employees are not required to provide coverage, but may choose to. Sole proprietors can opt out of carrying coverage.

ALASKA
Requirements:
Employers with one or more employees must have workers’ compensation insurance.
Exceptions:
Sole proprietors, partners, executive officers in a nonprofit corporation, members in a member-managed LLC, part-time babysitters, non-commercial cleaners, harvest help and similar part-time/transient help, sports officials for amateur events, contract entertainers, commercial fishers, and taxi drivers whose compensation is by contractual arrangement are exempt. Executive officers in a for-profit corporation may choose to exclude themselves.

ARIZONA
Requirements:
Mandatory for any business (including sole proprietors) that regularly hires or employs at least one employee, regardless of the number or type of workers (whether part-time, full-time, minors, or family members).
Exceptions:
Coverage is not required for working partners, independent contractors, casual workers, or domestic servants working in your home. Sole proprietors can opt out of coverage if they do not have employees.

ARKANSAS
Requirements:
Most employers with three or more employees must carry coverage.
Exceptions:
Employers with two or fewer employees, farm laborers, and real estate agents. There are exceptions to the three-or-more requirement; thus, employers with fewer than three should check with authorities before assuming they do not fall under the workers’ compensation laws.

CALIFORNIA
Requirements:
All employers and work situations, even those with just one employee, including corporate officers and directors, must carry coverage. If you’re an out-of-state employer you might need workers’ compensation coverage for any employees regularly working in California, or if you enter into a contract of employment.
Exceptions:
Executive officers and directors of corporations must be included in workers’ compensation coverage, unless the corporation is fully owned by the directors and officers. If the directors and officers fully own the corporation, they can choose to be excluded from coverage. Sole proprietors without employees can opt out of coverage.

COLORADO
Requirements:
All employers with one or more employees, whether full- or part-time. Anyone hired to perform services for pay is considered an employee.
Exceptions:
Exemptions include casual maintenance or repair work for a business for less than $2,000 per calendar year, private domestic and maintenance/repair workers not working full-time, real estate agents and brokers paid by commission, independent contractors (with no employees), and drivers working with a contract carrier. Sole proprietors can purchase workers’ compensation insurance for themselves, but are not required to do so. A corporate officer of a corporation or a member of an LLC may choose to exclude themselves from coverage.

CONNECTICUT
Requirements:
All businesses with one or more employees (full-time, part-time, or contract) except those able to self-insure. Also included are uninsured subcontractors.
Exceptions:
Corporate officers and members of multi-member LLCs are automatically included but may opt-out. Sole proprietors and single member LLCs may purchase it, but are not required to. Other exemptions include partnerships, who don’t have to cover themselves (but must provide coverage for employees). Employers or workers who work in or around a private home for 26 hours or less per week are also exempt.

DELAWARE
Requirements:
Employers with one or more employees.
Exceptions:
Farm workers are exempt from the workers’ compensation law, but employers may choose to provide coverage. Workers considered to be independent contractors, rather than employees, are also not covered.

DISTRICT OF COLUMBIA
Requirements:
Employers with one or more employees.
Exceptions:
Sole proprietors are not required to unless they have employees, but may choose to purchase coverage for themselves. Homeowners are required to have coverage for domestic workers if one or more works at least 240 hours during any calendar quarter in the same or previous year.

FLORIDA
Requirements:
Construction businesses with one or more employees and non-construction industry employers with four or more employees (full-time or part-time, including corporate officers and LLC members) must carry coverage. Agricultural businesses with six or more regular employees and/or 12 or more seasonal employees who work for more than 30 days must carry coverage. Sub-contractors are responsible for providing coverage for their workers, but primary contractors are responsible for ensuring that the sub-contractor has it. Out-of-state employers must immediately notify their carrier that they have employees working in Florida, carry a Florida workers’ compensation policy, or have the out-of-state policy include Florida.
Exceptions:
Corporate officers are considered employees, unless they choose to exempt themselves from coverage. Sole proprietors and partners in the non-construction industry are not considered to be employees unless they choose to be. Members of an LLC will be considered as corporate officers/employees, unless they choose to be exempt.

GEORGIA
Requirements:
Employers (including individuals, firms, associations, or corporations) of three or more people are required to carry coverage. Exempted officers of corporations or members of LLCs are counted as employees. Contractors who sub-contract any part of their work might be liable for coverage for the subcontractor’s employees if the subcontractor lacks coverage.
Exceptions:
Georgia considers sole proprietors and partners to be employers (not employees) and they are therefore exempt; however, they can choose to be covered as an employee by advising their insurance carrier.

HAWAII
Requirements:
Any employer with one or more employees (full- or part-time, permanent or temporary) must carry coverage. LLC members must also be covered.
Exceptions:
Sole proprietors and partners are excluded, but can choose to cover themselves. Other exemptions include domestic workers earning less than $225 per calendar quarter, some 25-percent stockholders and all 50-percent stockholders, and real estate salespeople paid by commission. Employers can choose to cover any excluded employees.

IDAHO
Requirements:
Employers with one or more full- or part-time, seasonal, or occasional employees are required to have workers’ compensation coverage.
Exceptions:
Sole proprietors are exempt, but can choose to cover themselves. Other exemptions include household/domestic workers, sole proprietors who employ family members that live in their household (certain family member employees of a sole proprietor employer who do not live in the same household as the employer can be exempt), pilots of agricultural planes, real estate salespeople paid by commission, and casual employees whose work occurs occasionally or at irregular times (and is not related to the type of business conducted by the employer).

ILLINOIS
Requirements:
Required in nearly every work situation and for every employer, even those with one part-time employee. If the business is in construction, trucking at a construction site, or other hazardous fields, in almost every instance Illinois requires employers to obtain insurance.
Exceptions:
Sole proprietors (with no employees) are exempt, but may choose to purchase insurance. Employees who are family members must also be insured unless they are corporate officers, work for an agricultural business that employs less than 400 days of labor per year, or are immediate family members who live with the employer.

INDIANA
Requirements:
All employees must be covered.
Exceptions:
Sole proprietors, partners, and LLC members are excluded from coverage, but can choose to be included. Corporate officers are included but can choose to be exempt. Independent contractors in the building and construction trades must be certified with the Indiana Worker’s Compensation Board. Independent contractors’ injuries are not covered by workers’ compensation.

IOWA
Requirements:
Most employers are required to purchase workers’ compensation insurance.
Exceptions:
Sole proprietors and LLC members are not required to be covered by insurance, but may choose to do so. Exempt and non-covered employees include domestic/casual workers who make under $1,500 from their employer during the 12 consecutive months before injury, agricultural workers whose employer has a cash payroll of less than $2,500 in the calendar year before the injury, agricultural exchange labor, and officers of a family farm corporation (as well as their spouse, parents, brothers, sisters, children, stepchildren and spouses of those family members).

KANSAS
Requirements:
Mandatory for all employers with employees with gross payroll over $20,000 (paid in Kansas or elsewhere and including executive officers), with some exceptions. Sole proprietors’ and partnership wages paid to owners and owners’ family members are not counted toward the total payroll.
Exceptions:
Agricultural employers and those with annual gross payroll under $20,000. Sole proprietors, partners, and LLC members are exempt, but can choose to be covered. Independent contractors with no employees may choose to be exempt from carrying insurance, but those with employees and payroll exceeding total gross payroll of $20,000 must provide coverage. Family members that are not true owners of a company, or do not own 10 percent of the business, must be included in the coverage and cannot choose to be excluded.

KENTUCKY
Requirements:
All employers with one or more employees, regardless of employee status
Exceptions:
Sole proprietors, partners, and LLC members are excluded from coverage, but can choose to cover themselves. Exceptions include farm workers, domestic servants in a home with fewer than two full-time employees, and employees protected by federal laws (railroad and maritime workers). Independent contractors aren’t covered unless they have their own policy.

LOUISIANA
Requirements:
All employers must provide workers compensation insurance for their employees (whether part-time, contractors, or full-time).
Exceptions:
Sole proprietors, partners, corporate officers, and LLC members are included, but can choose to be excluded. Exemptions include dusting/spraying airplane crews, real estate brokers and agents, musicians and performers, employees covered federally, unpaid officers and board members of certain nonprofit organizations, and people whose work includes the exploration, development, production, or transportation of minerals.

MAINE
Requirements:
Any business with one or more employees must provide workers’ compensation insurance coverage. Independent contractors don’t count as employees, but if contractors employ subcontractors, subcontractors must be covered.
Exceptions:
Sole proprietors, partners, and LLC members are excluded but can choose to include themselves. Other exemptions include employers of domestic servants, employers of casual or seasonal laborers in agriculture/aquaculture businesses (but they must have $25,000 in liability insurance and $5,000 in medical payments coverage), and employers of six or less agriculture/aquaculture employees (must have liability insurance of $100,000 for each full-time equivalent employee and at least $5,000 minimum in medical payments coverage).

MARYLAND
Requirements:
Every employer with one or more employees must provide workers’ compensation insurance, with a few exceptions.
Exceptions:
Sole proprietors are excluded from requiring mandatory coverage, but can choose to include themselves in their policy. Agricultural employers with less than three full-time employees or an annual payroll for full-time employees below $15,000 are exempt. Agricultural office workers, independent contractors on farms (other than migrant laborers), and owner-operators of large tractor-trailer vehicles are also exempt.

MASSACHUSETTS
Requirements:
All businesses must carry workers’ compensation insurance regardless of the number of hours worked. Employees in domestic service must be covered if they work 16 or more hours per week.
Exceptions:
Sole proprietors, partners, and LLC members are not required to carry coverage for themselves, but may choose to be covered. Other exemptions include workers engaged in interstate/international commerce, salespeople working in real estate or consumer goods paid by commission, taxi drivers who lease their cabs on a fee basis not related to fares (and who are not employees under federal tax law), people working in interstate/international commerce who are covered by federal law for compensation for injury or death.

MICHIGAN
Requirements:
All businesses with one or more employees are required to carry coverage.
Exceptions:
Employees of a sole proprietorship are covered by the Workers’ Disability Compensation Act, but the sole proprietor (the business owner) is self-employed, not considered to be an employee, and not covered. Under certain circumstances named partners and corporate officers who are also shareholders of small, closely-held corporations may exempt themselves from coverage. Certain family members of an employer may also be exempt. Virtually all other employers and employees are subject to the law.

MINNESOTA
Requirements:
All employers are required to provide workers’ compensation insurance coverage to all employees, including non-US citizens and minors.
Exceptions:
Sole proprietors, partners, some managers of LLCs, officers of closely held corporations and certain relatives are excluded from compulsory coverage, but may choose to be included in their policy. Employers covered by federal liability laws are exempt, and so are family farm operations, with some restrictions.

MISSISSIPPI
Requirements:
All employers with five regular employees must provide workers’ compensation insurance coverage.
Exceptions:
Sole proprietors, partners, and corporate officers don’t count toward the employee total if they choose to not cover themselves. Employers with less than five employees or domestic or farm laborers are not required to have coverage but may be choose to provide it. Independent contractors are usually excluded from coverage but protection is given to employees of subcontractors.

MISSOURI
Requirements:
Employers with five or more employees must carry workers’ compensation coverage. All construction businesses with one or more employees (including part-time, full-time, temporary, and seasonal) require coverage. Corporate officers count toward the employee total.
Exceptions:
Sole proprietors and partners are excluded from requiring coverage, but can choose to be covered. Close family member-employees and members of LLCs are covered unless they opt out. Other exemptions include farm laborers, domestic servants, real estate salespeople, and commercial motor-carrier owner/operators.

MONTANA
Requirements:
All employers must carry workers’ compensation insurance coverage for all employees. Businesses in the construction industry must provide coverage for all employees, both resident and nonresident, if and while they work in Montana.
Exceptions:
Sole proprietors can exclude themselves from coverage, but may choose to be included. Contractors do not have to be covered under a business’s workers’ compensation policy, but must provide proof that they are a certified independent contractor. Other exceptions include domestic/household workers, casual/infrequent employees, freelancers, newspaper carriers, licensed barbers or cosmetologists who contract with cosmetology establishments, petroleum land professionals, and real estate, securities, and insurance salespersons paid by commission.

NEBRASKA
Requirements:
All employers (including contractors) with one or more employees (including part-time employees and minors) must have workers’ compensation insurance.
Exceptions:
Sole proprietors with no employees are not required to carry coverage, but may choose to purchase coverage. Federal employees, railroad employees, most volunteers, and independent contractors are exempt, as are household/domestic servants and some employees of agricultural operations (unless the business chooses to provide coverage).

NEVADA
Requirements:
All employers with at least one employee must carry coverage. Subcontractors, independent contractors, and their employees must also be covered (unless they are independent enterprises). Construction businesses are required to have workers’ compensation insurance.
Exceptions:
Sole proprietors without employees are not required to carry coverage, but can choose to have coverage for themselves. Other exceptions include household/domestic workers, agricultural or horticultural labor, employment related to interstate commerce entities not subject to Nevada’s laws, employment covered by private disability and death benefit plans, employers working in Nevada temporarily and insured in another state (not including construction), and casual employees (lasting less than 20 days with a labor cost of under $500), among others.

NEW HAMPSHIRE
Requirements:
All employers with any employees (full- and part-time, and family members) must carry workers’ compensation insurance. Even non-profit organizations must carry coverage.
Exceptions:
Sole proprietors, partners, and self-employed individuals are not required to carry coverage for themselves, but may choose to. Business that use subcontractors must ensure they have coverage or could be held liable for any injuries to the subcontractor’s employee or employees. Coverage is not mandatory for corporations or LLCs with three or fewer executive officers or members and no other employees, but remains optional. However, once there is a fourth officer or member, workers’ compensation must be obtained.

NEW JERSEY
Requirements:
Any business with one or more employees, and any employer not covered by federal programs must carry coverage. Out-of-state employers might need coverage if they enter a contract of employment in New Jersey or if any work is performed in New Jersey.
Exceptions:
Sole proprietors with no employees are not required to carry coverage, but may choose to cover themselves.

NEW MEXICO
Requirements:
All businesses with three or more employees are required to have workers’ compensation insurance. Coverage may be purchased voluntarily if the business has fewer than three employees. Construction businesses must carry coverage regardless of their number of employees.
Exceptions:
Sole proprietors and are usually excluded from coverage, but can choose to cover themselves. Coverage is not required for domestic servants, real estate salespeople, or farm/ranch laborers. Executives or sole proprietors with a financial interest who are employed by a corporation or LLC can choose not to be covered, but the executive is still counted for determining the number of workers.

NEW YORK
Requirements:
Virtually every employer is required to provide workers’ compensation insurance for all employees (including family members, part- and full-time workers, and leased employees).
Exceptions:
Coverage is not required for sole proprietors or partners without employees, but they may choose to do so.

NORTH CAROLINA
Requirements:
All employers with three or more employees are required to carry workers’ compensation insurance for all employees (including minors and undocumented workers). Any business in which one or more employees’ work involves the use or presence of radiation must have compensation insurance.
Exceptions:
Employers with less than three employees. Corporate officers may choose to be excluded from insurance coverage, but are still counted in the employee count. Sole proprietors, LLC members, and partners are not automatically counted as an employee and may choose to be included. Agricultural employers are not required to carry workers’ compensation unless they have 10 or more non-seasonal agricultural workers. Domestic/household servants are exempt.

NORTH DAKOTA
Requirements:
All employers must have workers’ compensation insurance for all employees (part-time, full-time, or seasonal) before hiring.
Exceptions:
Sole proprietors, partners, and corporate officers are not required to have insurance coverage, but may choose to do so. Farm and ranch labor, household/domestic workers, verified independent contractors and children (under age 22) of the employer are exempt.

OHIO
Requirements:
All employers with one or more employees must carry workers’ compensation insurance.
Exceptions: Coverage is optional for sole proprietors, partners, family farm corporate officers, LLCs acting as partnerships, an LLC acting as sole proprietor, and individuals incorporated as a corporation (with no employees).

OKLAHOMA
Requirements:
All employers, even those with one part-time employee, must carry workers’ compensation insurance.
Exceptions:
Sole proprietors, LLCs, partners, and corporate officers are not required to have insurance company, but may choose to cover themselves. There is also a “family of five or fewer exemption,” where an employer with five or fewer total employees (all of whom are related by blood or marriage to the employer), are exempt. Some workers in agricultural/horticultural businesses, licensed real estate brokers, and most household/domestic workers are exempt.

OREGON
Requirements:
Employers with one or more employees must carry workers’ compensation insurance.
Exceptions:
Sole proprietors can purchase coverage for themselves, but are not required to.

PENNSYLVANIA
Requirements:
Workers’ compensation insurance coverage is mandatory for all employers with one or more employees (regardless of employee status, number of hours worked per week or whether the employee is a spouse or child).
Exceptions:
Coverage for sole proprietors, partners, and corporate officers is optional. Licensed real estate salespeople or brokers, licensed insurance agents who work on a commission-only basis, domestic or casual laborers, outworkers, farmers with one employee who works less than 30 days a year or earns less than $1,200 a year, and a spouse or child of the farmer employer under eighteen years of age are exempt.

RHODE ISLAND
Requirements:
Employers with four or more employees must carry workers’ compensation coverage.
Exceptions:
Employers with three or fewer employees, sole proprietors, partners, and independent contractors. Some real estate, agricultural and domestic/household employees may be exempt.

SOUTH CAROLINA
Requirements:
Employers that employ four or more regular full-time or part-time employees are required to carry workers’ compensation insurance. Employees include adults, minors, and seasonal workers.
Exceptions:
Sole proprietors, partners, and LLC members are not automatically included in coverage, but may choose to include themselves in their policy. Agricultural employees, railroad/railway companies and their employees, and employers with a total annual payroll during the previous year below $3,000 (regardless of the number of employees) are exempt, as are textile hall corporations and some commission-paid real estate salespeople. If a subcontractor lacks coverage, their injured employees would be covered under the employer’s workers’ compensation insurance.

SOUTH DAKOTA
Requirements:
All employers must carry insurance, regardless of the number of employees.
Exceptions:
Corporate officers and members of LLCs are included, but may choose to be excluded. Sole proprietors and partners are excluded, but may choose to be included. Domestic servants working under 20 hours per week and less than six weeks in any 13-week period, farm/agricultural laborers, independent contractors, real estate agents, and owner-operators of trucks certified as independent contractors are exempt.

TENNESSEE
Requirements:
Every employer in the construction or coal mining business or trades (regardless of the number of employees, including subcontractors), and every employer with five or more employees must carry coverage.
Exceptions:
Family members and part-time employees are included when determining the number of employees. Corporate officers are also included in the count (even if excluded from coverage). Sole proprietors, LLC members, and partners are excluded but may choose to be included.

TEXAS
Requirements:
Workers’ compensation insurance is optional for employers in Texas. Construction companies on contract for governmental entities, however, must have coverage.
Exceptions:
Sole proprietors, partners, corporate officers, and LLC members are included under state coverage, but can choose to opt out. Employers not carrying insurance are non-subscribers and must notify employees, but could be liable in a civil suit. Workers have the legal right to file compensation claims if they think they have a genuine case and their employer refuses to pay benefits.

UTAH
Requirements:
All employers are required to carry coverage for employees. Directors, officers, and LLC members are considered employees. To exclude themselves from mandatory coverage, they must do so through an insurance company.
Exceptions:
Sole proprietors, partners and LLCs are not required to have coverage but may choose to be covered. General contractors must ensure their subcontractors (including sole proprietors, partners, and corporate officers) carry coverage. Businesses excluded from mandatory coverage include employers of agricultural laborers, casual or domestic workers, and real estate brokers.

VERMONT
Requirements:
All employers with one or more employees (full- or part-time) must carry coverage.
Exceptions:
Sole proprietors and partners may purchase coverage, but are not required to. Corporate officers and LLC members are included in coverage requirements, but may choose to be exempt. Businesses that work with independent contractors must determine in writing who’s responsible for insurance. If the independent contractor lacks coverage, your business will be responsible. Casual employees whose work is not for the purpose of the employer’s trade or business, and employees in agriculture/farming for an employer whose payroll is less than $10,000 in a calendar year are exempt.

VIRGINIA
Requirements:
Employers who regularly employ two or more employees are required to carry coverage. Employees include part-time, seasonal and temporary workers, minors, trainees, immigrants, and working family members. Coverage is optional for businesses with fewer than two employees.
Exceptions:
Sole proprietors, partners, and LLC members are excluded from mandatory coverage, but may choose to cover themselves with their policy. Independent contractors are not automatically eligible for workers’ compensation coverage, but if the independent contractor employs two or more full- or part-time employees, those workers are eligible.

WASHINGTON
Requirements:
All employers with one or more employees must carry coverage.
Exceptions:
Sole proprietors, partners, corporate officers, and LLC members are excluded from mandatory coverage, but may choose to be included in their policy. Exemptions include domestic servants (but two or more employed regularly for over 40 hours/week must be covered), private residential gardeners and maintenance/repair workers, family farm laborers who are minors, musicians/entertainers at specific events, and cosmetologists/barbers who rent or lease their space.

WEST VIRGINIA
Requirements:All employers must carry coverage, with some exceptions.
Exceptions:
Independent contractors, agricultural employers with less than five employees, and casual employers with less than three workers are exempt. Sole proprietors, partners, LLC members, and corporate officers are all included in coverage, but can choose to be excluded. Other exemptions include domestic service employers, federally-covered employees, employers who are churches, and employers in organized professional sports (but coverage must be provided for employees who help run the business but do not participate in sporting activities).

WISCONSIN
Requirements:
All employers must carry coverage.
Exceptions:
Sole proprietors with no employees are not required to carry coverage, but may choose to cover themselves. Sole proprietors, LLC members, and partners don’t count toward the number of employees a business has, but corporate officers do (unless there are only two of them and the company has no other employees). Farmers who employ six or more workers on the same day for any 20 days during the calendar year must purchase insurance no later than ten days after the 20th day of employment. Out-of-state employers who have employees working in Wisconsin must have coverage, and the policy must be through an insurance company licensed in Wisconsin. Employers with one or more full- or part-time employees that have been paid combined gross wages of $500 or more in any calendar quarter for work done at one or more Wisconsin locations must have insurance by the 10th day of the first month of the next calendar quarter.

WYOMING
Requirements:
All employers must have coverage for all employees. Employees include workers under any contract of hire (express or implied, oral or written) and also include minors, aliens authorized to work, and aliens the employer reasonably believes to be authorized to work.
Exceptions:
Sole proprietors and partners are excluded from coverage for themselves. Corporate officers and LLC members may choose to be covered. Exemptions also include the following, who are not considered employees: casual laborers, independent contractors, spouses/dependents of an employer living in the employer’s household, individual child caregivers or babysitters whose wages are subsidized/paid by Wyoming’s department of family services, and private household/domestic employees, among others.

Minimum Wage by State

The laws regarding minimum wage can be confusing.  Not only does each state set its own minimum wage for workers in the state, but there is also a federal minimum wage.

Under the federal minimum wage law – called the Fair Labor Standards Act (FLSA) – the federal minimum wage for covered nonexempt employees is $7.25 per hour.  The FLSA applies to: (a) employees of businesses with annual gross volume of sales of at least $500,000; (b) smaller businesses engaged in interstate commerce or in the production of goods for commerce, such as employees who work in transportation; and (c) employees of federal, state or local government agencies, hospitals and schools, as well as to domestic workers.

In instances where state law requires payment of higher minimum wage than federal law, the higher wage applies.  Below are the state-by-state minimum wage requirements.

 

(Current as of 2018)

Alabama: $7.25

Alaska: $9.84

Arizona: $10.50

Arkansas: $8.50

California: $11.00 for employers with 26 or more employees; $10.50 for employers with 25 or less employees

Colorado: $10.20

Connecticut: $10.10

Delaware: $8.25

District of Columbia: $13.25

Florida: $8.25

Georgia: $7.25

Hawaii: $10.10

Idaho: $7.25

Illinois: $8.25

Indiana: $7.25

Iowa: $7.25

Kansas: $7.25

Kentucky: $7.25

Louisiana: $7.25

Maine: $10.00

Maryland: $10.10

Massachusetts: $11.00

Michigan: $9.25

Minnesota: $9.65 for large employers; $7.87 for small employers; $7.87 for the 90-day training wage and youth wage

Mississippi: $7.25

Missouri: $7.85

Montana: $8.30

Nebraska: $9.00

Nevada: $8.25

New Hampshire: $7.25

New Jersey: $8.60

New Mexico: TBD

New York: $10.40 for most employers; $13.00 for large employers and $12.00 for small employers in New York City; $11.00 for Long Island and Westchester Counties

North Carolina: $7.25

North Dakota: $7.25

Ohio: $8.30

Oklahoma: $7.25

Oregon: $10.25 standard minimum wage; $11.25 for Portland Metro region; $10.00 for Nonurban Counties

Pennsylvania: $7.25

Puerto Rico: $6.55

Rhode Island: $10.10

South Carolina: $7.25

South Dakota: $8.65

Tennessee: $7.25

Texas: $7.25

Utah: $7.25

Vermont: $10.50

Virginia: $7.25

Washington: $11.50

West Virginia: $8.75

Wisconsin: $7.25

Wyoming: $7.25