CT Workers Comp: Good News & Bad News for Single-member LLCs

CT insurance agents take note: If you insure single member Limited Liability Corporations (LLCs), a recent court decision related to CT workers comp will affect them and may require action. Here’s the scoop:

For as long as any of us can remember, single member Limited Liability Corporations (LLCs) were not required to carry workers comp insurance. In many states, they have the option of opting in, but most do not. The CT Supreme Judicial Court recently upended this business-as-usual approach in Gould v. City of Stamford: the court ruled that single member LLCs are in fact covered by CT workers comp. So the good news is that single member LLCs injured in the course and scope of work have immediate access to the robust benefits of the workers comp system.

The bad news is they will have to pay for it. And for most, the cost is prohibitive.

Devil in the Numbers

Workers comp premiums for companies with more than one employee are based upon actual payrolls: the class rate times the payroll times the experience mod factor (if any). For single member LLCs, their actual payroll/billings are irrelevant. Instead, CT uses the substantial payroll basis of $67,600, which is derived from the state’s average industrial wage.

For those LLCs with incomes at or above that amount, the cost of workers comp is in line with that of companies with multiple employees. If the payroll/income of the single member LLC is substantially less than that amount, the cost of insurance is truly alarming.

For example, a semi-retired carpenter who still performs a few jobs over the course of the year might have total billings of $25,000. If the class rate for this individual is $15.00 per hundred of payroll, they would normally pay $3,750 for comp coverage. However, with the payroll basis of $67,600, the premium would be $10,140, a full 40 percent of total earnings. Ouch!

Opting Out

There is light at the end of this proverbial tunnel: single member LLCs can file form 6B to opt out of coverage, which will put them back where they were before the court ruling: outside the workers comp system. However, if they do nothing, they will be covered by workers comp and they will owe premiums based upon the above big number.

Carriers and agents are currently in the process of putting out the word to single member LLCs. Agents need to be on top of this issue, as there may be some nasty litigation when big premium bills hit the mailboxes of single member LLCs. Savvy agents will make sure that single member LLC policy holders are aware of this CT workers comp change!

Jon Coppelman
Senior Workers Compensation Consultant

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