Understanding North Carolina General Statutes on Workers' Compensation Requirements

In North Carolina, the General Statutes require any business that employs three or more people to carry workers' compensation insurance. This mandate, primarily governed by the North Carolina Workers' Compensation Act (Chapter 97 of the NC General Statutes), applies to corporations, sole proprietorships, limited liability companies (LLCs), and partnerships, with specific rules regarding how owners and officers are counted.

North Carolina’s approach to workers' compensation is designed as a "no-fault" system. This means that as long as an injury occurs by accident and arises out of and in the course of employment, the employee is entitled to benefits regardless of who was at fault. In exchange for this guaranteed support, the North Carolina General Statutes provide employers with "exclusive remedy" protection, generally shielding them from civil lawsuits filed by injured employees. As of 2026, the North Carolina Industrial Commission (NCIC) continues to strictly enforce these statutes to ensure the stability of the state’s workforce and economy.

The Statutory Foundation: NCGS Chapter 97

The legal framework for workers' compensation in North Carolina is found in Chapter 97 of the North Carolina General Statutes, known as the Workers' Compensation Act. This comprehensive body of law dictates which employers must provide coverage, what types of injuries are compensable, and the processes for filing and adjudicating claims.

The Act was established to balance the interests of the employer and the employee. Before these statutes existed, an injured worker had to sue their employer in civil court to recover damages, a process that was slow, expensive, and often unsuccessful. Conversely, employers faced the risk of astronomical jury awards. The General Statutes replaced this adversarial system with a streamlined administrative process overseen by the North Carolina Industrial Commission.

The "Three or More Employees" Rule

According to NCGS § 97-2(1), the requirement to obtain insurance is triggered once an employer has three or more regular employees. It is a common misconception that "regular" only refers to full-time staff. Under the law, the count includes:

• Full-time employees.
• Part-time employees.
• Seasonal employees.
• Temporary workers.
• Family members who work for the business.

Even if the three employees are not all working at the same time or at the same location, the requirement remains active as long as the total number of individuals employed by the entity reaches the threshold.

How Different Business Entities Count Employees

The way the North Carolina General Statutes count individuals toward the three-employee threshold depends heavily on the legal structure of the business. Miscalculating this number is one of the most frequent reasons for statutory non-compliance.

Corporations

Under NCGS § 97-2(2), corporate officers are legally considered employees of the corporation. Even if a corporation consists only of three officers and no other staff, it is required by law to carry workers' compensation insurance. While an officer can technically "elect" to be excluded from coverage for themselves via a formal filing, they are still counted as an employee for the purpose of determining if the corporation meets the three-person requirement.

Limited Liability Companies (LLCs)

The rules for LLCs differ slightly. Members of an LLC (the owners) are not automatically counted as employees toward the three-person threshold. However, they have the option to elect to be covered under the policy if they choose. If an LLC has three employees who are not members, coverage is mandatory. If an LLC has two employees and two members, coverage is generally not mandatory unless the members elect to be treated as employees.

Sole Proprietorships and Partnerships

Similar to LLC members, sole proprietors and partners are not counted as employees toward the three-person threshold. However, if they hire three or more people, they must obtain coverage for those employees. The owners themselves are excluded from coverage unless they specifically request to be included in the policy through an endorsement.

Mandatory Coverage Exceptions and Special Industries

While the "three-employee rule" is the standard, the North Carolina General Statutes provide specific exceptions for certain industries and types of work.

Agriculture and Farming

Agricultural operations are subject to a different threshold. Under NCGS § 97-2(1), a farm is only required to carry workers' compensation insurance if it employs 10 or more full-time, non-seasonal laborers. This exception recognizes the unique economic and seasonal nature of farming. However, it is important to note that "seasonal" workers have specific legal definitions; an employer cannot simply label a year-round worker as seasonal to avoid the requirement.

Domestic Workers

Individuals employed as domestic servants in a private household are generally excluded from mandatory coverage. If a homeowner hires a nanny or a housekeeper, they are not typically required to provide workers' compensation unless they employ more than 10 such individuals, though many homeowners choose to add "residence employee" coverage to their homeowners' insurance policies for liability protection.

Specific Exemptions

Certain other groups are exempt regardless of the number of employees:

• Federal Employees: They are covered under federal programs like the Federal Employees' Compensation Act (FECA).
• Railroad Employees: Covered under the Federal Employers Liability Act (FELA).
• Casual Employees: Individuals whose employment is both casual and not in the course of the trade, business, profession, or occupation of the employer. This is a very narrow definition and rarely applies to standard business operations.

Employee vs. Independent Contractor Disambiguation

One of the most litigated areas of North Carolina workers' compensation law is the distinction between an employee and an independent contractor. Many employers believe that if they issue a Form 1099 instead of a W-2, they are exempt from providing insurance for that worker. This is incorrect.

The North Carolina Industrial Commission and the courts use the "Right to Control" test to determine status. If the employer has the right to control how, when, and where the work is done, the worker is legally an employee, regardless of any written contract stating they are an independent contractor. Factors considered under the General Statutes include:

1. Level of Supervision: Does the employer provide specific instructions?
2. Tools and Materials: Who provides the equipment necessary for the job?
3. Method of Payment: Is the worker paid by the hour (suggests employee) or by the project (suggests contractor)?
4. Exclusivity: Does the worker perform services for other businesses?

If a business hires subcontractors who do not have their own workers' compensation insurance, the hiring business (the "principal contractor") may become liable for injuries sustained by the subcontractor's employees under NCGS § 97-19.

Methods of Compliance with the General Statutes

Employers who fall under the mandate must prove they have the financial ability to pay potential claims. There are three primary ways to comply with the insurance requirement in North Carolina:

If an employer is unable to find coverage in the voluntary private market due to a high-risk industry (such as roofing or logging), they may be placed in the North Carolina Workers' Compensation Assigned Risk Pool, ensuring that no business is left without a way to comply with the law.

Penalties for Non-Compliance in 2026

The North Carolina General Statutes take the requirement for insurance very seriously. Failure to maintain coverage is not merely a bureaucratic oversight; it is a violation of law that carries significant financial and criminal consequences.

Civil Penalties

Under NCGS § 97-94, the North Carolina Industrial Commission can assess civil penalties against any employer who is required to carry insurance but fails to do so. The penalty is typically calculated at $1.00 per employee per day, with a minimum of $50.00 per day and a maximum of $100.00 per day. For a small business, these fines can quickly reach tens of thousands of dollars, often exceeding the cost of the actual insurance premium.

Criminal Penalties

Willful failure to provide workers' compensation insurance is a crime in North Carolina.

• Class H Felony: If an employer willfully fails to provide coverage, they can be charged with a Class H felony, which carries the potential for prison time.
• Class 1 Misdemeanor: In less severe cases of neglect or misrepresentation, a Class 1 misdemeanor may be charged.

Personal Liability

Perhaps the most devastating consequence is that officers and managers of a non-compliant corporation can be held personally liable for the cost of an injured worker's medical bills and lost wages. If the company cannot pay, the state can pursue the personal assets of the business owners.

The "Arising Out Of" and "In the Course Of" Requirements

Simply being injured at work does not automatically trigger benefits. According to NCGS § 97-2(6), for an injury to be compensable, it must be "by accident arising out of and in the course of the employment."

• Arising Out Of: This refers to the causal connection between the job duties and the injury. The risk must be incidental to the employment.
• In the Course Of: This refers to the time, place, and circumstances of the injury. Generally, this means the worker was on the employer's premises and performing work-related tasks.

The "Coming and Going" Rule

Generally, injuries sustained while commuting to or from work are not covered under North Carolina law. However, exceptions exist if the employer provides transportation, if the employee is on a "special errand" for the boss, or if the employee has no fixed place of work (like a traveling salesperson).

Common Mistakes to Avoid

1. Assuming 1099 status equals exemption: As discussed, the Industrial Commission looks at the reality of the working relationship, not the tax forms.
2. Excluding officers from the count: Even if officers waive coverage for themselves, they still count toward the three-person threshold that triggers the need for a policy for the other employees.
3. Lapses in coverage: Even a one-week gap in coverage can trigger a visit from the Industrial Commission’s Fraud Investigative Unit and result in heavy fines.
4. Misclassifying the industry: Reporting a construction business as a clerical office to lower premiums is considered insurance fraud, which is a felony under NCGS § 58-2-161.

Frequently Asked Questions

Does a business with only two employees need workers' compensation in NC?

Generally, no. The statutory requirement begins at three employees. However, some businesses choose to purchase coverage anyway to gain the "exclusive remedy" protection, which prevents employees from suing the employer for negligence in the event of a workplace injury.

Are subcontractors required to have their own insurance?

If the subcontractor has three or more employees, they are required by law to have their own insurance. If they do not, the general contractor becomes the "statutory employer" and is responsible for any injuries to the subcontractor's workers. Most general contractors require proof of insurance (a Certificate of Insurance) before allowing a subcontractor on-site.

What happens if an employee is injured but the employer has no insurance?

The employee can still file a claim with the Industrial Commission. If the Commission finds the employer was required to have insurance, the employer will be ordered to pay all medical expenses and disability benefits out of pocket. Additionally, the employer will face the civil and criminal penalties outlined in NCGS § 97-94.

Can an employee waive their right to workers' compensation?

No. In North Carolina, an employee cannot legally waive their right to workers' compensation benefits. Any contract or agreement that attempts to do so is considered void and unenforceable under the General Statutes. This ensures that the state’s social safety net remains intact.

How are premiums calculated in 2026?

Premiums are primarily based on the business's total payroll and the "classification codes" of the employees. Each job type has a rate based on its inherent risk. This total is then adjusted by an "Experience Modifier" (E-Mod), which rewards businesses with a good safety record and increases costs for those with frequent claims.

Practical Recommendations for Employers

For any business owner in North Carolina, the first step is to conduct a thorough count of all personnel, including officers and part-time help. If your count is three or more, you must contact a licensed insurance agent immediately to secure a policy.

Furthermore, you should maintain a file of Certificates of Insurance for every subcontractor you hire. This simple administrative step protects your business from being held liable for injuries to people who are not technically your employees. Finally, regularly review your job descriptions and classifications with your insurance provider to ensure you are paying the correct premium and are fully compliant with Chapter 97. Ensuring compliance is not just a legal obligation—it is a fundamental component of a stable and protected business strategy in North Carolina.

For more information, you can visit the North Carolina Industrial Commission or review the North Carolina General Assembly’s official statutes.