Short answer: in Illinois, a sole proprietor, partner or LLC member with no employees can usually leave themselves off workers’ comp, and a corporation’s top officers can opt out in writing. The moment anyone else works for the business, coverage is required for them. A “ghost policy” is a minimum-premium policy with the owner excluded and no employees on it: it can produce the certificate a general contractor asks for, but it pays nothing if the owner gets hurt.
Owners ask about workers’ comp for two different reasons. Some want to know whether they can skip it. Others have been told by a general contractor, a property manager or a client that they need a certificate before they can start work. The rules for both are in the Illinois Workers’ Compensation Act, and they are more specific than most owners expect.
Who Illinois Requires to Carry Workers’ Comp
The Act covers employers in two ways. First, Section 3 of the Act lists about twenty “extra hazardous” kinds of business that are covered automatically. The list includes construction, remodeling, demolition, excavating and electrical work; trucking; warehousing; manufacturing; bars and restaurants that use slicers or hot grease; beauty shops; and any business using power-driven equipment. Second, any other business that sells goods or services to the public is covered once its payroll in the prior year passed $1,000, which in practice means almost every business with a paid worker.
The Illinois Department of Insurance, which enforces the requirement, puts it plainly on its compliance page: if an employer has one employee, even a part-time employee, the employer must provide workers’ compensation coverage. Group health insurance, disability insurance and general liability do not satisfy that requirement.
The owner is the exception. How an owner is treated depends on how the business is organized.
| Who | Default under the Act | How to change it |
|---|---|---|
| Sole proprietor | Not covered unless they elect coverage | Elect coverage on the policy; their payroll is charged at a flat amount set each year |
| Partner | Not covered unless they elect coverage | Same as a sole proprietor |
| LLC member | May elect not to be covered | Elect in or out on the policy |
| Corporate officer | Covered as an employee | Written notice to the insurance company; only a bona fide president, vice president, secretary or treasurer can withdraw |
| Family members on payroll | Covered as employees | Only if they are bona fide corporate officers (or under the farm exemption) |
| Household staff in a private home | Covered at 40 or more hours a week for 13 or more weeks in a year | Not an owner election; see our household employee page |
Two points in that table trip people up. A corporate officer’s withdrawal only takes effect when the insurance company receives the written notice, and it takes another written notice to come back in. And the Department of Insurance says the owner opt-out does not apply to employers in extra-hazardous occupations such as construction and trucking. That limit is the Department’s stated position rather than a sentence in the statute, so a construction business that wants to leave its owners off should confirm how its insurer and the Department will treat it before relying on the exclusion.
Should an Owner Opt In or Stay Out?
Leaving yourself off saves premium. Whether that is a good trade depends on what happens to your income and your medical bills if you are hurt on the job.
- Medical bills. Some health plans exclude injuries that happen at work, on the assumption that workers’ comp pays them. Read the exclusions section of your plan before you decide.
- Lost income. Comp replaces part of your wages while you cannot work. Disability insurance can do the same thing, often with a waiting period and its own definition of disability.
- Cost. When a sole proprietor or partner elects coverage, the premium is based on a flat payroll figure that NCCI sets each year, not on what the owner draws. For an owner in a high-rated trade like roofing or framing, that flat figure times the trade’s rate can be a large number.
- The jobs you want. Many general contractors, property managers and commercial clients require a certificate showing workers’ comp before an owner-operator can start. Some will accept a policy with the owner excluded; some want the owner covered.
Corporate officers have one more variable. An officer’s payroll on the policy is their actual pay, but it is held between a minimum and a maximum set each year. An officer who draws no salary is charged at the minimum. An officer who also does trade work is classified under the trade, not as clerical.
What a Ghost Policy Is
“Ghost policy” is an industry nickname, not a term in the Act. It describes a workers’ comp policy bought by an owner-operator with no employees who has excluded themselves. The policy is in force and the insurer will issue a certificate of insurance for it, but on the day it is issued it covers nobody. The premium is usually the insurer’s minimum premium, because there is no payroll to charge.
Owners buy them because a general contractor will not let an uninsured sub on the job. As our post on how subcontractors affect your coverage explains, a general contractor whose sub cannot produce a certificate usually ends up paying premium on that sub’s payments at audit, and in construction it can owe comp benefits to an uninsured sub’s employees. The certificate is how the general contractor avoids both.
What it does not do
- It does not cover the owner. The owner excluded themselves. If they fall off a ladder, the policy pays nothing.
- It does not stay a ghost if you hire help. The first helper you pay becomes payroll on the policy. The insurer finds it at audit and bills for it, and until you report the hire, your declarations and your premium are understated.
- It does not cover the people you pay as subs. If you pass work to your own uninsured helpers and call them subcontractors, your insurer can charge for them at audit, and in construction you can owe them benefits if they are hurt.
- It does not survive a false application. Understating payroll or misdescribing the work to buy a policy at less than the proper premium is a crime under Section 25.5 of the Act, graded by the amount of premium avoided. Intentionally providing a false or altered certificate of insurance is a felony under the same section.
None of that makes a minimum-premium policy improper. An owner-operator who works alone, describes the operation accurately and reports any help they hire is using the policy the way it is written. The trouble starts when the policy is treated as a permanent hall pass while the business quietly grows.
Hiring Help Changes the Answer Overnight
Owners often assume a part-time helper, a relative or someone paid in cash does not count. Under the Act and the Department’s guidance, a paid helper is an employee from the first day unless they meet the tests for an independent contractor, and calling them a 1099 contractor does not settle it. Illinois courts weigh who controls how the work is done, who sets the hours, how the person is paid, who supplies the tools, whether the person can be let go at will, and whether the work is part of your regular business. The Illinois Supreme Court described those factors in Roberson v. Industrial Commission (2007), and no single factor decides the case.
Construction adds the Employee Classification Act, which presumes that a person doing construction work for a contractor is an employee unless the contractor can meet a three-part test or show the person runs a legitimate business of their own. Our post on whether 1099 independent contractors need workers’ compensation walks through how carriers, the Commission and the tax agencies each look at that question.
What It Costs to Go Without
Section 4(d) of the Act sets the penalties for an employer that is required to carry coverage and does not:
- Civil penalties of up to $500 for each day without coverage, with a $10,000 minimum, and higher amounts for repeat violations.
- A stop-work order that can shut down operations at the business or job site until coverage is in place.
- A Class 4 felony for knowingly failing to insure, and a Class A misdemeanor for negligently failing to, with each day counted as a separate offense.
- Personal liability for corporate officers, partners and LLC members if the business does not pay the penalty.
- Loss of the Act’s protection: an injured employee can sue the uninsured employer in court, and the employer cannot raise the usual defenses such as the worker’s own negligence.
Enforcement is active. The Department of Insurance’s Workers’ Compensation Fraud and Noncompliance Unit, which took over compliance from the Commission in 2021, opened 280 investigations and referred 40 cases to the Attorney General in fiscal year 2025 (July 2024 through June 2025), according to its annual report. And as of August 7, 2026, Public Act 104-792 adds a provision aimed at corporations, LLCs and partnerships whose state license requires proof of comp coverage: if they let it lapse, the Section 4(d) penalties apply unless they can show they were not operating.
A Quick Way to Find Your Situation
| Your situation | What usually fits |
|---|---|
| Sole proprietor or single-member LLC, no help, clients do not ask for a certificate | No policy required for yourself; decide based on your health plan and disability coverage |
| Owner-operator, no help, a general contractor wants a certificate | A policy with the owner excluded (a “ghost policy”) or with the owner included, depending on what the contract requires |
| Owner-operator in construction or trucking | Confirm with the insurer how the Department’s extra-hazardous position applies before excluding yourself |
| Any paid helper, part-time or family | A standard policy covering that payroll from the first day |
| Corporation whose officers do not want coverage | Written officer exclusions sent to the insurer, limited to president, vice president, secretary and treasurer |
| You hire subcontractors | Collect each sub’s certificate before work starts and keep it for your audit |
Before you hire a sub, you can check whether a business has an Illinois workers’ comp policy on file through the state’s employer coverage search, which the Workers’ Compensation Commission links from its home page. It tells you a policy exists, not who it covers, so ask for the certificate as well.
Frequently Asked Questions
Do sole proprietors need workers’ comp in Illinois?
Not for themselves, in most cases. A sole proprietor is not covered by the Act unless they elect coverage. As soon as they pay anyone else to work in the business, they need a policy for that person. The Department of Insurance says the owner opt-out does not apply in extra-hazardous occupations like construction and trucking, so owners in those trades should confirm their position with their insurer.
Can an LLC owner exclude themselves from workers’ comp in Illinois?
Yes. Section 3 of the Act lets a sole proprietor, partner or member of a limited liability company elect not to be covered. Employees of the LLC must still be covered.
How does a corporate officer opt out of workers’ comp?
By written notice to the insurance company. Only a bona fide president, vice president, secretary or treasurer can withdraw, the exclusion takes effect when the insurer receives the notice, and coming back in takes another written notice.
Is a ghost policy legal in Illinois?
A policy issued to an owner-operator who has excluded themselves and has no employees is a real policy, and owners use them to get a certificate of insurance. What is illegal is misrepresenting the business to get one: understating payroll, hiding employees, or altering a certificate. Those are crimes under Section 25.5 of the Act.
What does a ghost policy cover?
On the day it is issued, nobody. The owner is excluded and there are no employees. If the owner later hires help, those employees are covered, and the insurer charges premium for their payroll at audit.
What is the penalty for not having workers’ comp in Illinois?
Civil penalties of up to $500 a day with a $10,000 minimum, possible stop-work orders, and criminal charges: a Class 4 felony for knowingly failing to insure and a Class A misdemeanor for negligently failing to. Officers and owners can be held personally liable, and an injured worker can sue the business in court.
How do I check whether a subcontractor has workers’ comp?
Ask for a certificate of insurance before work starts, and check that the policy dates cover the whole job. You can also search the state’s employer coverage database, linked from the Workers’ Compensation Commission’s website, to confirm a policy is on file.
This article provides general educational information, not legal advice or a coverage determination. Whether a person is an employee, whether an exclusion is valid, and how a policy applies depend on the facts and on the policy language. Statutes are summarized from the Illinois Compiled Statutes as of October 2026.
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