Workers Comp Ghost Policy
A minimum-premium workers comp policy for businesses with no employees, obtained solely to satisfy contractual requirements from GCs or project owners.
What It Is
A Workers Comp Ghost Policy is a workers compensation policy issued to a business that has no employees — typically a sole proprietor, single-member LLC, or small partnership where all members are excluded from coverage. The policy exists solely to satisfy contractual requirements from GCs, property owners, or other upstream parties that require all subcontractors to carry workers compensation coverage.
The ghost policy is issued at the state minimum premium (typically $750-$2,500 depending on the state and classification) and provides the required Coverage Part A (statutory) and Coverage Part B (Employers Liability) — even though there are no employees to cover. If the policyholder hires employees during the policy term, the ghost policy automatically provides coverage, and the payroll audit at year-end will adjust the premium accordingly.
Ghost policies are common in construction, where GCs require all subcontractors — including sole proprietors — to show proof of workers comp. Without a ghost policy, the sole proprietor's labor cost may be included in the GC's workers comp audit as uninsured subcontractor payroll.
Why It Matters for Brokers
Brokers working with small contractors must understand ghost policies because they solve a common problem: the sole proprietor who cannot get hired for projects without proof of workers comp. The ghost policy also protects the GC from audit exposure — without proof of the sub's workers comp, the GC's carrier will include the sub's payments in the GC's auditable payroll, increasing the GC's premium.
Real-World Example
A sole-proprietor tile installer is hired for a $45,000 subcontract on a commercial renovation. The GC requires proof of workers comp. The installer has no employees and is exempt from the state's mandatory coverage requirement. However, without a workers comp certificate, the GC's carrier will add the $45,000 subcontract to the GC's workers comp audit at the tile classification rate of $4.80 per $100 — an additional $2,160 in audit premium for the GC. The installer obtains a ghost policy at the state minimum premium of $1,100 per year, satisfying the GC's requirement and preventing the audit charge.
Common Mistakes
- 1Not explaining to sole proprietors that a ghost policy protects both them (contract eligibility) and their GC (audit prevention).
- 2Failing to note that if the sole proprietor hires employees, the ghost policy automatically provides coverage — the broker must ensure the payroll is reported accurately.
- 3Not checking whether the state requires the sole proprietor to include themselves on the policy or allows them to be excluded.
How brokerageaudit.com Handles This
Policy Checker identifies ghost policies (minimum premium, no reported payroll) and flags them distinctly from standard workers comp policies. It monitors for payroll changes that would indicate the sole proprietor has hired employees, triggering the need for a payroll adjustment. COI Manager generates workers comp certificates from ghost policies with the same accuracy as standard policies, satisfying GC certificate requirements.