Yes. Kentucky requires workers compensation insurance for any business with one or more employees, and that includes contractors. Operating without it is a Class D felony. Here is what contractors need to know about the law, the penalties, subcontractor requirements, and how experience modification rates affect your premiums.
Kentucky's Workers Comp Requirement
Under KRS 342.340, every Kentucky employer with one or more employees must carry workers compensation insurance. Unlike some states that set the threshold at three or five employees, Kentucky draws the line at one. If you hire a single W-2 employee - full-time, part-time, or seasonal - you are required to have a policy in place before they start work.
This applies to general contractors, electrical contractors, plumbers, HVAC companies, roofers, and every other trade. The type of work does not matter. The employee count does.
Penalties for Non-Compliance
Kentucky takes workers comp violations seriously. Operating without required coverage is classified as a Class D felony under state law. The consequences include:
- Fines of $1,000 to $25,000 for each day you operate without coverage
- Stop-work orders that shut down your job sites until you obtain a policy
- Personal liability for all medical bills, lost wages, and rehabilitation costs for any injured worker
- Criminal prosecution that can result in jail time
- Loss of contractor licenses and inability to bid on future projects
The financial exposure from a single workplace injury without coverage can easily exceed $100,000. A workers comp policy is not optional - it is the cost of doing business legally in Kentucky.
Subcontractor Requirements
If you are a general contractor who hires subcontractors, you need to understand how the law applies to them as well. If a subcontractor has employees of their own, they are required to carry their own workers comp policy. You should verify their certificate of insurance before they set foot on your job site.
Here is where it gets critical: if a subcontractor is a sole proprietor without employees and does not carry workers comp, your policy may be required to cover them. If they are injured on your job site and have no coverage, the claim flows up to you. This can significantly increase your premiums and your experience modification rate.
The safest practice is to require certificates of insurance from every subcontractor, regardless of size, and add them as additional insureds on your general liability policy.
How the Experience Modification Rate Works
Your experience modification rate (EMR or e-mod) is a multiplier that adjusts your workers comp premium based on your company's claims history compared to similar businesses in your industry. A new business starts with a 1.0 modifier. If you have fewer claims than average, your modifier drops below 1.0 and your premium decreases. More claims push it above 1.0, and your premium increases.
For contractors, the EMR matters beyond just premium cost. Many general contractors and project owners require subcontractors to have an EMR below 1.0 to bid on jobs. A high EMR can lock you out of profitable projects. Maintaining a strong safety program is one of the most effective ways to control your workers comp costs long-term.
Exemptions in Kentucky
Kentucky law provides limited exemptions from the workers comp requirement:
- Sole proprietors with no employees may elect to exempt themselves from coverage
- Partners and LLC members can file for exemption, but only for themselves - not for any employees
- Certain agricultural workers and domestic employees have limited exemptions
Even if you qualify for an exemption, carrying workers comp on yourself can be a smart decision. Without it, your health insurance may not cover work-related injuries, and you have no income replacement if you are unable to work.