Michigan Workers' Compensation: Who Must Carry It and the Penalties for Going Without
Michigan Workers' Compensation: Who Must Carry It and the Penalties for Going Without
If you have employees in Michigan, you probably need workers' compensation insurance. The requirement comes from the Workers' Disability Compensation Act, MCL 418.115, and it reaches more businesses than many new owners expect, including some with only one or two people on payroll. This guide covers the michigan workers compensation requirements in plain terms: who has to carry coverage, how the employee count works, what happens if you go without, and which questions you should confirm with the state before you rely on an answer.
This guide is informational content, not legal, tax, or insurance advice. Requirements can turn on facts specific to your business. For complex situations, talk with a qualified Michigan attorney, a CPA, and a licensed insurance agent before you make decisions.
Who has to carry workers' compensation in Michigan
Under MCL 418.115, coverage is required for three groups:
- Private, non-agricultural employers that regularly employ 3 or more employees at one time.
- Private, non-agricultural employers with fewer than 3 employees if at least one employee has worked 35 or more hours a week for 13 weeks or longer in the preceding 52 weeks.
- All public employers.
The coverage itself must be a policy from a Michigan-authorized insurer, or a self-insurance arrangement approved by the state (MCL 418.611). Other policies, such as general liability, do not satisfy this requirement.
How the employee count works
Most owners fall into one of three situations. The table shows how the two tests apply.
| Your situation | Coverage required? |
|---|---|
| Regularly employ 3 or more employees at one time | Yes |
| Fewer than 3 employees, and none has worked 35 or more hours a week for 13 weeks or longer in the preceding 52 weeks | Not under this test, subject to the exclusions discussed below |
| Fewer than 3 employees, and at least one has worked 35 or more hours a week for 13 weeks or longer in the preceding 52 weeks | Yes |
The second row is where many small businesses get caught. The test looks back 52 weeks, so hours worked earlier in the year still count when you check your position today. Keep a running log of weekly hours for everyone on your payroll, including seasonal and temporary help, so you can answer the question for any date.
Common situations
- A sole owner with no employees. The employee tests do not trigger on their face. Confirm how the agency treats owners before you rely on that (see below).
- Two employees, one working 36 hours a week for 14 weeks. The second test applies. Coverage is required.
- Three part-time employees regularly working at the same time. The first test applies regardless of hours. Coverage is required.
- A subcontractor with no coverage on your job. MCL 418.171, discussed below, can make a business that is subject to the Act liable for an uninsured subcontractor's workers.
Who the rule does not settle on its own
Three groups need an answer from the Workers' Disability Compensation Agency before you rely on your own reading:
- Independent contractors. The independent contractor test is applied by the agency. Calling someone a contractor in a written agreement is not, by itself, the answer.
- Household help. How the household help exclusion applies to your situation.
- Owners and officers. Whether owners and officers are counted toward your employee totals, and how the owner exclusions apply.
Check with the Workers' Disability Compensation Agency on each of these before you finalize your staffing plan. Ask for the answer in writing where the agency will provide one, and keep a copy in your records. Do not treat any of these three points as settled until you have that answer.
What using an uninsured contractor can cost you
Under MCL 418.171, a business that uses an uninsured contractor can owe that contractor's workers' compensation. If a subcontractor's crew has no coverage and someone is hurt on your job, the claim may reach your business. Hiring a subcontractor does not, on its own, move that exposure off your books.
Before any subcontractor starts work, ask for proof of current Michigan workers' compensation coverage. Confirm the policy is active on the day they start, keep a copy in your job file, and ask for an updated certificate at each renewal.
The penalties for going without
Failing to carry required coverage is a misdemeanor under the Act (MCL 418.641). The exposure has four parts:
- Fine: up to $1,000.
- Jail: up to 6 months, or a fine and jail together.
- Daily counting: each day without coverage is a separate offense, so the potential exposure grows with every day you are noncompliant.
- Lawsuit: an injured employee can sue the business for damages.
The daily rule is what makes a short lapse expensive. A few weeks without a policy can mean many separate offenses, not one.
The lawsuit is often the larger risk. An employee hurt while your business lacks coverage can sue for damages under the same statute. This guide does not put a dollar figure on that exposure, because it depends on the injury and the claim. Talk with a Michigan attorney about how that would work for your business.
Coverage is an insurance obligation, not a license
Michigan has no general statewide business license. LARA's Corporations Division receives and files the documents that form and maintain business entities. It does not license businesses. Registering an LLC or corporation through the MiBusiness Registry is a filing, not a license, and it does not satisfy the workers' compensation requirement.
Workers' compensation is an obligation tied to your employees, so it applies regardless of how the business is organized. Licensing is handled separately, by trade or activity, through LARA's State License Search and the relevant agency, and local zoning and health approvals are handled locally. Each of those is a separate question from insurance.
How to get covered
- Count employees every month. Track headcount for the 3-employee test and weekly hours for the 35-hour, 13-week test.
- Get quotes from Michigan-authorized insurers. Ask the agent to confirm in writing that the carrier is authorized in Michigan. Premiums vary with your payroll and type of work, so this guide does not list a premium figure. Compare written quotes on coverage terms, not just price.
- Resolve the open questions first. Get the agency's answers on independent contractors, household help, and owners before you set your staffing or classification.
- Collect certificates from every subcontractor. Verify coverage is active on each start date.
- Calendar renewals. A lapsed policy leaves you exposed to every penalty described above.
Where to confirm the details
- Workers' Disability Compensation Agency: the independent contractor test, the household help exclusion, and the owner exclusions. Search michigan.gov for the agency's current contact details.
- Michigan LARA: https://www.michigan.gov/lara
- Michigan Small Business Development Center: https://michigansbdc.org/ for general small business guidance.
When to bring in a professional
Talk with a Michigan attorney before you classify anyone as an independent contractor, especially if you use contractors across several jobs or have owners who also work in the business. Work with a licensed insurance agent before you buy a policy, so the coverage matches your payroll and your classes of work. A CPA can help if your mix of employees, contractors, and household help is complicated.
Bottom line
Michigan requires coverage for private non-agricultural employers with 3 or more employees at one time, for smaller employers when a worker meets the 35-hour, 13-week test, and for all public employers. Going without carries a misdemeanor fine of up to $1,000, up to 6 months in jail, daily stacking of offenses, and exposure to lawsuits from injured workers. Count your employees now, get the three open questions answered by the agency, and collect proof of coverage from every subcontractor before work starts.