Washington Workers' Comp for Contractors: What You Owe and Who Is Liable

If you run a construction business in Washington, workers' compensation works differently than in most states. You do not shop around for a policy. You buy coverage from the state, you report hours every quarter, and you can end up responsible for a subcontractor's unpaid premiums. This guide explains how the system works for contractors, what you owe when you hire, and how to protect yourself. It is educational, not legal advice. Confirm your specific situation with the Department of Labor & Industries (L&I).

Coverage comes from L&I, not a private insurer

L&I's guidance is blunt: you must purchase your coverage from L&I or be a certified self-insured employer, and Washington does not allow private workers' compensation coverage. State law says employers must secure payment of compensation by insuring and keeping insured with the state fund, or by qualifying as a self-insurer. Self-insurance is narrow. L&I's employer guide says companies with at least $25 million in assets, and some governmental entities, may qualify. For a typical contractor, that means the state fund.

This is separate from your liability coverage. A general liability policy does not replace workers' compensation. For that side of your insurance, see general liability insurance for Washington contractors.

How your premium is calculated

L&I says the premium rate a business pays is based on risk classifications, base rates for each classification, and an experience factor that is specific to your business. For each classification, L&I multiplies the experience factor by the combined Accident Fund, Medical Aid Fund and Stay at Work base rates, then adds the base rate for the Supplemental Pension Fund. The result is a rate charged per hour worked.

That has two practical consequences for you. First, your risk classification depends on the kind of work your employees do, so make sure your account reflects your actual trade. Second, your premium follows hours, not just payroll. L&I's employer guide says you should generally report the actual number of hours worked by your employees. A business with an experience factor above 1.0 is assessed more, so a bad claims history raises your cost. Ask L&I for the current rates for your classification, because they change.

What you can deduct from employee pay

Washington law lets you recover part of the premium from your workers, but only part. Under RCW 51.16.140, an employer who is not a self-insurer deducts from each worker's pay one-half of the amount the employer is required to pay for medical benefits within each risk classification. L&I's wage guidance says the same thing in plain language: employers may deduct one-half of the Medical Aid Fund portion.

Do not go beyond that. The same statute makes it unlawful to deduct or obtain any other part of the premium from workers' wages unless the law specifically authorizes it, and L&I's employer guide says it is illegal to withhold more than the authorized amount. L&I's rate page lists Stay at Work and Supplemental Pension Fund components in the premium, but the pages we reviewed describe only the half of Medical Aid as the employee share. If you are unsure what to take out of a paycheck, ask L&I before you change your payroll setup.

Owners, sole proprietors and officers

Many contractors assume the owner is covered automatically. Generally, you are not. L&I's employer guide says individuals who own and control any type of business are generally excluded from mandatory workers' compensation coverage. The statute lists the exclusions, including sole proprietors or partners, certain corporate officers who meet the statute's conditions, and members of a limited liability company who meet its conditions. The details depend on how your company is structured and managed, so confirm yours with L&I.

You can elect coverage. L&I says owner coverage is available for sole proprietors, partners and limited liability partners. Timing matters. Under RCW 51.32.030, a sole proprietor, partner or joint venturer who has requested coverage is entitled to benefits only if the department received written notice of that request, on forms it provides, before the date of the injury. The same statute lets L&I cancel that personal coverage if required payments or reports have not been made. If you work with your hands, elective coverage deserves a real conversation with L&I before you need it. For LLC members and corporate officers, ask L&I what applies to your entity.

Hiring your first employee

Hiring changes your obligations. L&I says you must get a workers' compensation account by applying for or updating your state business license. If you already have a license, update your business information to indicate you are hiring employees. If you have no license yet, you apply for one. L&I's employer guide also says that if you own an existing business and will be hiring employees, you re-file the business license application.

Do this before the first day of work, not after the first paycheck. Before you hire, run the numbers. Premiums are one piece of your real cost per worker, along with payroll taxes and benefits, so use the labor burden calculator. If you are weighing whether to add someone at all, read can a contractor afford another hire and who to hire next.

Quarterly reporting and late penalties

Once you have an account, you report worker hours and pay premiums every quarter. L&I's guide says quarterly reports are due no later than the last day of the month that follows the end of the quarter. In practice, that means a quarter ending March 31 is due April 30, a quarter ending June 30 is due July 31, a quarter ending September 30 is due October 31, and a quarter ending December 31 is due January 31. The guide also says that if you have no worker hours to report, no premium is due. Ask L&I how to handle quarters with no hours so your account stays in good standing.

Late filing costs money. L&I's penalty table shows a total of 5% of the premium due when you are one month late, plus interest, and the penalty grows the longer you wait. It also says no penalty amount will be less than $10. Set a calendar alert for the 20th of the month after each quarter closes, and use our Washington reminders to stay ahead.

When you are liable for a subcontractor's premiums

This is the part that surprises general contractors. Under RCW 51.12.070, the person, firm or corporation that lets a contract for the work is responsible primarily and directly for the premiums on that work, and can then try to collect the amount from the subcontractor. L&I's employer guide warns that you might have to pay someone else's workers' comp premiums.

The statute gives a registered or licensed contractor a way out. You are not responsible for premiums on a subcontractor's work if the subcontractor meets all of these conditions:

• It is currently in a business registered or licensed under chapter 18.27, 18.106 or 19.28 RCW.
• It has a principal place of business eligible for a business tax deduction.
• It keeps separate books or records of income and expenses.
• It is contracted for specified construction, plumbing or electrical work.
• It has an industrial insurance account in good standing with L&I or is a self-insurer.

You can treat the account as being in good standing if, within a year before letting the contract and at least once a year after that, you verify the status with L&I, and you have not received written notice that it changed. A dated L&I document or a dated printout from L&I's website works as proof.

How to protect yourself

1. Before you sign with any sub, look them up in the L&I Verify tool. It shows whether a business has an active and paid-to-date workers' comp account covering any employees.
2. Print or save the dated result and keep it with the subcontract file.
3. Repeat the check at least once a year while the relationship continues, and again if you hear the sub is behind.
4. Confirm the sub meets the other statutory conditions, including a current contractor registration. Our license lookup guide shows how.
5. Put the requirement in your written subcontract so a sub must tell you if its account changes.

Penalties for going without coverage

Skipping coverage is expensive. Under RCW 51.48.022, after an investigation finds a failure to secure payment of compensation, L&I's director may issue a stop work order requiring the employer to stop business operations. Violating that order carries a $1,000 penalty for each day not in compliance. Separately, where an employer knowingly fails to secure payment of compensation with intent to evade, a court must order a penalty of one hundred percent of the premium due and owing, plus interest. L&I's guide also warns of premium assessments, penalties for not reporting, and interest on unpaid premiums.

Where to go next

Workers' comp is one piece of the compliance picture. Review our Washington compliance overview and the Washington contractor hub for the rest. Rates, rules and forms change, so check with L&I before you act.

Common questions

Sources

Official pages checked on 2026-10-12.

• www.lni.wa.gov/insurance/insurance-requirements/do-i-need-a-workers-comp-account/
• app.leg.wa.gov/rcw/default.aspx?cite=51.14.010
• lni.wa.gov/forms-publications/f101-002-000.pdf
• lni.wa.gov/insurance/rates-risk-classes/rates-for-workers-compensation/calculating-premium-rates
• app.leg.wa.gov/RCW/default.aspx?cite=51.16.140
• www.lni.wa.gov/workers-rights/wages/getting-paid/paycheck-deductions
• app.leg.wa.gov/RCW/default.aspx?cite=51.12.020
• lni.wa.gov/insurance/insurance-requirements/how-to-get-a-workers-compensation-account
• app.leg.wa.gov/RCW/default.aspx?cite=51.32.030
• lni.wa.gov/insurance/quarterly-reports/penalties-and-interest-for-filing-late/
• app.leg.wa.gov/RCW/default.aspx?cite=51.12.070
• secure.lni.wa.gov/verify/
• app.leg.wa.gov/rcw/default.aspx?cite=51.48.022
• app.leg.wa.gov/rcw/default.aspx?cite=51.48.020