Workers' Comp for Sole Proprietors and the Self-Employed: Do You Need It? (CA and IL)

Short answer: if you work alone with no employees, neither California nor Illinois requires you to carry workers' comp on yourself. You can usually buy it anyway, and many owners do, because clients ask for a certificate of insurance or because their health and disability coverage leaves gaps. The rules change the moment you hire your first employee, and some California contractors must carry coverage even when they work alone.

We've helped owners in both states sort this out since 1981. Here's when coverage is required, when it's optional, what a "ghost policy" is, and how to decide what's right for you.

Key takeaways

• Sole proprietors with no employees aren't required to cover themselves in California or Illinois.
• Hire one employee, even part-time, and you must carry workers' comp for them in both states.
• In California, licensed roofing, concrete, HVAC, tree service and asbestos abatement contractors already need coverage even with no employees, and the rule extends to all licensed contractors on January 1, 2028.
• Corporate officers, partners and LLC members have their own opt-out rules, and in California a written waiver is required.
• A ghost policy gives you a certificate of insurance at a low cost but pays no benefits to you.

Do sole proprietors need workers' comp?

Workers' comp laws protect employees. A sole proprietor isn't their own employee, so when you work alone, the requirement doesn't apply to you in either state. What matters is who else works for you:

• No employees: coverage for yourself is optional.
• One or more employees: coverage for them is required from their first day, in both California and Illinois.
• People paid on a 1099: they may be employees in the eyes of the state. See our guide to workers' comp for independent contractors and 1099 workers.

California rules for owners

Sole proprietors

A California sole proprietor with no employees doesn't need workers' comp, with one major exception for contractors.

Licensed contractors: the SB 216 requirement

California Senate Bill 216 ended the "no employees" workers' comp exemption for many licensed contractors. Since 2023, roofing contractors (C-39) and licensees in several other high-risk trades, including concrete, HVAC, tree service and asbestos abatement, must show workers' comp to the Contractors State License Board even if they work alone. The requirement was scheduled to reach every licensed contractor on January 1, 2026, but later legislation (SB 1455) pushed that date to January 1, 2028. If you hold a CSLB license, check your classification now so a renewal doesn't stall.

Corporations, partnerships and LLCs

California treats owners of a business entity differently from sole proprietors. Under Labor Code section 3351:

• Corporate officers and directors who are paid are covered automatically, unless they own at least 15% of the company's stock and sign a written waiver.
• An officer or director who is the sole shareholder isn't considered an employee, so coverage for them is optional.
• General partners and managing members of an LLC who are paid are covered unless they sign a written waiver.

The waiver takes effect when your insurer receives and accepts it, not when you sign it, so file it with your carrier before you need it.

Illinois rules for owners

Illinois lets business owners exclude themselves from workers' comp. According to the Illinois Workers' Compensation Commission, that applies to:

• Sole proprietors
• Business partners
• Corporate officers
• LLC members

To opt out, you notify your insurer in writing under Section 3(17)(b) of the Workers' Compensation Act. Opting out removes you from the policy. It never removes the obligation to cover your employees, and an Illinois employer that knowingly goes without required coverage faces fines of up to $500 a day with a $10,000 minimum. Our guide to workers' comp in Illinois covers the full requirements.

What is a workers' comp ghost policy?

A ghost policy is a minimum-premium workers' comp policy for a business with no employees, where the owner is excluded from coverage. Because no one is actually covered, it pays no benefits if you're hurt. What it does give you is a real policy number and a certificate of insurance.

Owners buy ghost policies because many general contractors, property managers and corporate clients won't let anyone on site without a workers' comp certificate. A ghost policy satisfies that requirement at a fraction of the cost of covering yourself, often around $750 to $1,200 a year.

Things to know before you buy one:

• It doesn't protect you. If you're injured, a ghost policy pays nothing.
• Availability depends on your state and carrier. Illinois hasn't banned them, and several carriers offer owner-only policies there. In California, availability varies by carrier, and a ghost policy may not satisfy every licensing requirement, so confirm what the CSLB will accept for your classification.
• Hiring changes everything. The day you hire an employee, they must be covered. Tell your agent before the hire, not at audit.

Should you cover yourself anyway?

Being exempt doesn't mean you're protected. Consider covering yourself if:

• Your work is physical. A fall or a lifting injury can stop your income for months.
• Your health plan may not pay for work injuries. Some policies deny claims for injuries that happen on the job, and most don't replace lost income.
• You don't have disability insurance. Workers' comp pays a portion of lost wages while you recover.
• Clients require it. A policy that actually covers you also produces the certificate clients want.

When owners elect coverage, insurers price it on a payroll figure for the owner, often within minimum and maximum amounts set by the state's rating rules, multiplied by the rate for your class code. A consultant who works at a desk pays far less than a roofer. Our guide to workers' comp costs shows how the math works.

How to get coverage as a sole proprietor

1. Decide whether you need real coverage on yourself or just proof of coverage for clients.
2. Confirm your class code. It sets your rate.
3. Compare carriers. Pricing for owner-only policies varies widely, and not every carrier writes them.
4. Plan for growth. If you expect to hire, choose a carrier that can add employees mid-term without a new application.

Already have employees? See our California workers' compensation or Illinois workers' compensation pages.

Get a workers' comp estimate in two minutes

Whether you're covering yourself or your first hire, our online estimator gives California and Illinois businesses an instant workers' comp premium range, and a licensed agent follows up to find the right policy.

Get your instant workers' comp estimate or call us at 847-767-4504.

Frequently asked questions

Does a sole proprietor need workers' comp in California?

Not if you have no employees, unless you hold a contractor's license in a classification that requires it. Roofing and several other high-risk trades already need coverage, and all licensed contractors will need it starting January 1, 2028.

Does a sole proprietor need workers' comp in Illinois?

No, not for yourself. Illinois lets sole proprietors, partners, corporate officers and LLC members exclude themselves in writing. Once you have an employee, even part-time, you must cover them.

How much does workers' comp cost for a self-employed person?

It depends on your class code and the payroll figure your insurer uses for owners. A ghost policy that only provides a certificate often runs around $750 to $1,200 a year, while real coverage on yourself costs more, especially in physical trades.

Does a ghost policy cover me if I get hurt?

No. A ghost policy excludes the owner, so it pays no benefits. It only provides proof of coverage. If you want protection for your own injuries, you need a policy that includes you.

This article is general information, not legal advice. Requirements depend on your entity type, license and state. Bliss Marc International Corporation is a licensed insurance agency, California License #0H92044 and Illinois License #100299879.