A solo contractor with zero employees can still end up paying for workers’ compensation every year, and the reason has nothing to do with protecting a workforce that doesn’t exist. The policy costs about $1,000 a year, and it is bought almost entirely to satisfy someone else’s paperwork. Since the owner is the only one on the policy, usually no one covered by it will file a claim. That’s the whole point.
Farmer Brown Insurance, a commercial brokerage that has covered small businesses and contractors in all 50 states since 1996, places ghost policies for solo contractors who keep losing bids over a certificate they didn’t think they needed.
The paperwork problem starts with someone else’s audit
A general contractor’s workers’ compensation carrier audits its payroll every year, and that audit asks for a certificate of insurance from every subcontractor the GC paid. If a subcontractor cannot produce one, the carrier reclassifies that payment as the GC’s own payroll, and the GC’s premium rises accordingly. For example, consider a solo drywall installer bidding on a $47,300 remodel who has never carried a certificate before. The general contractor turns him down immediately, not because his one-person crew poses any real risk, but because the GC’s own insurer will ask for that certificate next year regardless. Without it, the GC won’t hire him.
A ghost policy exists to produce one document
A ghost policy, sometimes called an if any policy, is a workers’ compensation policy with only the owner listed on it. It carries no injury benefits for employees, because there are no employees to cover. Its entire function is procedural. It generates the certificate a general contractor’s insurer requires before letting a sub on site, and once the policy is in place, getting one issued typically takes hours, not days. Paperwork only. The cost runs about $1,000 a year, though the exact figure shifts by state and by how the business is structured. The certificate it produces looks identical to one from a policy covering fifty employees. That’s all the paperwork was ever checking for.
The policy has a blind spot of its own
A ghost policy covers the contractor who bought it. But that doesn’t mean it covers any subcontractor that contractor hires. Since the same reclassification rule that required him to carry a ghost policy in the first place now applies to him when he hires someone else, a solo electrician who subcontracts out a $12,400 portion of a job without collecting that subcontractor’s certificate is setting up his own audit surprise. Not his employee, but his problem now. That $12,400 becomes his own payroll at his next audit, and a bill follows a few months later, once the bookkeeping has already closed for the year. Collecting the certificate before the sub starts work costs nothing. Finding out after costs real money.
The cost is a line item, not a loss
For a one-person business, workers’ compensation is still a cost that needs to be accounted for. A ghost policy that’s required for a specific job is a direct project expense, and contractors who build it into the bid recover it the same way they recover fuel or permit fees, rather than treating it as overhead they eat every time. There is a second reason to keep the paperwork clean. A contractor who finishes the policy year with no employees on payroll, and full certificates on file from any subs used along the way, may qualify for a partial refund on the premium at audit. Clean records can pay off.
Texas is the one exception, not the rule
Every state except Texas requires workers’ compensation for businesses with employees, which is exactly why the certificate requirement shows up on almost every job site regardless of where the work happens. One exception. Texas is the only state where private employers can choose not to carry it at all. That single exception doesn’t mean a general contractor’s own insurer demands any less from every sub on a multi-state project. A policy covering no one keeps being bought anyway, by contractors who will never file a claim on it.
