How Many Employees in Michigan Before Workers' Compensation?

In Michigan, private employers must carry workers' compensation insurance if they employ three or more employees at any one time, or if they employ one or more workers for 35 or more hours per week for 13 or more weeks during the preceding 52 weeks. All public employers must carry coverage regardless of the number of employees.

The Michigan Workers’ Disability Compensation Act is designed to provide a "no-fault" system that ensures injured workers receive medical care and wage loss benefits while protecting employers from costly negligence lawsuits. As we navigate the business environment of 2026, understanding these specific thresholds is critical for compliance, as the penalties for operating without required coverage can be financially devastating.

The Legal Thresholds for Michigan Employers

The requirement to provide workers' compensation benefits is not universal for every single person who performs work, but the thresholds in Michigan are among the most inclusive in the United States. The law distinguishes between private and public entities and sets specific triggers based on the volume and duration of employment.

Private Employers: The "Three or More" Rule

The most common trigger for workers' compensation insurance in Michigan is the "three or more" rule. If a private business has three or more employees at any one time, they are legally required to have a policy. This includes part-time employees. It is a common misconception that part-time status exempts a worker from the count. If you have three people working five hours a week each, you have reached the threshold.

The "35 Hours for 13 Weeks" Rule

Even if an employer never has three employees at once, they may still be required to carry insurance if they have a single "regular" employee. Michigan law defines this as one or more employees working 35 or more hours per week for 13 or more weeks (consecutive or non-consecutive) during the preceding 52 weeks.

This rule is particularly important for small businesses that rely on a single full-time manager or a long-term seasonal worker. Once that 13-week mark is hit within a year, the employer must secure coverage.

Public Employers

For public entities—including cities, townships, counties, and state departments—the rules are different. Every public employer in Michigan is required to have workers' compensation insurance, regardless of how many people they employ or how many hours those people work. There is no minimum threshold for the public sector.

Defining "Employee" Under Michigan Law

Determining whether you have met the employee threshold requires a clear understanding of who counts as an "employee." The Michigan Workers’ Disability Compensation Act (Act 317 of 1969) provides broad definitions, but certain nuances apply to family members, corporate officers, and independent contractors.

Part-Time vs. Full-Time

As mentioned, the law does not generally distinguish between part-time and full-time status when counting the "three or more" threshold. If they are on the payroll and performing services for hire, they count. The distinction only becomes relevant for the "one employee" rule, where the 35-hour-per-week requirement specifically targets full-time arrangements.

Corporate Officers and LLC Members

In Michigan, corporate officers are technically considered employees of the corporation. However, if a corporation has no more than 10 stockholders and those stockholders are also the officers, they may elect to exclude themselves from coverage by filing a specific exclusion form (Form WC-337) with the Workers' Disability Compensation Agency.

Similarly, members of a Limited Liability Company (LLC) who own at least a 10% interest in the business can often be excluded. It is important to note that excluding oneself does not remove the requirement to cover other non-owner employees if the threshold is met.

The Independent Contractor Debate

One of the most litigated areas of workers' compensation is the classification of independent contractors. Simply labeling someone a "1099 contractor" does not exempt an employer from counting them toward the threshold if they are legally "employees."

Michigan uses the Economic Reality Test to determine employment status. Courts and the Agency look at:

• The degree of control the employer has over the work.
• Whether the worker’s tasks are an integral part of the business operations.
• Who provides the tools and equipment.
• The method of payment.
• Whether the worker performs services for other clients.

If a worker is found to be an employee under this test, and they weren't insured, the employer faces significant liability.

Special Categories and Exemptions

While the general rules apply to most businesses, Michigan law provides specific provisions for certain industries and arrangements, such as agriculture and domestic service.

Agricultural Workers

Agricultural employers have slightly different thresholds. They are required to provide coverage if:

1. They employ 3 or more regular workers 35 or more hours per week for 13 or more consecutive weeks out of the preceding 52 weeks.
2. If they do not meet that threshold but employ 1 or more workers 35 or more hours per week for 5 or more consecutive weeks, they must provide medical benefits (though not necessarily wage loss benefits) for that worker.

Domestic Servants

Domestic employees, such as nannies, housekeepers, or private gardeners, are covered under the same "35 hours for 13 weeks" rule as other private employees. If a household employs a domestic worker who meets this full-time criteria, the homeowner must secure workers' compensation insurance, which is often available as an endorsement on a homeowner’s insurance policy.

Sole Proprietors and Partners

Sole proprietors and partners in a partnership are not considered employees of their own businesses and are not required to cover themselves. However, if they have employees, they must follow the standard "three or more" or "35 hours/13 weeks" rules to cover those staff members.

The Consequences of Non-Compliance

In 2026, the Michigan Workers' Disability Compensation Agency remains vigilant in enforcing these mandates. Failing to provide insurance when required leads to several severe consequences.

Legal Penalties and Fines

An employer who fails to comply with the insurance requirement may be subject to a fine of up to $1,000 or imprisonment for up to six months, or both. Each day of non-compliance can be treated as a separate offense.

Loss of "Exclusive Remedy" Protection

The most dangerous consequence for an employer is the loss of the "exclusive remedy" defense. Under the Workers’ Disability Compensation Act, an employee generally cannot sue their employer for negligence in exchange for receiving guaranteed benefits. If the employer fails to carry insurance, the employee is allowed to sue the employer in civil court for unlimited damages, and the employer is barred from using common defenses (such as the employee's own negligence).

Personal Liability for Owners

If a business is uninsured and an employee is injured, the officers and directors of a corporation can be held personally liable for the payment of benefits. This means personal assets—homes, bank accounts, and investments—could be at risk to pay for a worker’s medical bills and lifetime wage loss.

Stop-Work Orders

The State of Michigan has the authority to seek an injunction in court to shut down a business's operations until the required workers' compensation insurance is obtained.

How to Obtain and Calculate Coverage

For most Michigan employers, insurance is purchased through private carriers. Michigan has a competitive market with hundreds of companies licensed to write workers' comp policies.

The Michigan Workers’ Compensation Placement Facility

If a business is considered "high risk" and cannot find coverage in the voluntary market, they can obtain insurance through the Michigan Workers’ Compensation Placement Facility. This is the market of last resort, ensuring that no employer is unable to comply with the law due to being denied by private insurers.

Understanding Costs: Class Codes and Experience Mods

Premiums are calculated based on three primary factors:

1. Classification Codes: Each job type is assigned a four-digit NCCI (National Council on Compensation Insurance) code. High-risk jobs like roofing have higher rates than clerical jobs.
2. Payroll: Rates are applied per $100 of payroll.
3. Experience Modifier (E-Mod): This is a multiplier based on the company's past claims history. A safe workplace with fewer accidents will have an E-Mod below 1.0, leading to lower premiums.

Frequently Asked Questions

1. Are family members counted in the employee threshold?

Yes, family members are generally counted as employees if they are paid to perform work. While there are some narrow exceptions for very small family-owned agricultural operations, most family employees contribute to the "three or more" count. However, in a small corporation, family members who are also officers can exclude themselves using Form WC-337.

2. Does a subcontractor’s insurance status affect my business?

Absolutely. If you hire a subcontractor who does not have their own workers' compensation insurance, that subcontractor (and their employees) may be legally considered your employees in the event of an injury. Michigan law allows for "statutory employment," where a general contractor becomes liable for the injuries of an uninsured subcontractor’s staff. Always collect a Certificate of Insurance (COI) from any contractor you hire.

3. What if my employees work in multiple states?

If an employee is hired in Michigan or works primarily in Michigan, they are generally covered by the Michigan Workers’ Disability Compensation Act. If you have employees in other states, you must ensure your policy has "Other States Coverage" (Section 3A/3C) to comply with the laws of those specific jurisdictions.

4. Can I require employees to pay for their own workers' comp?

No. It is illegal in Michigan to deduct any portion of a workers' compensation premium from an employee's wages. The entire cost of the insurance must be borne by the employer.

5. Does the 13-week rule have to be consecutive?

No. For the "one or more employees for 35+ hours" rule, the 13 weeks do not need to be consecutive. They simply need to occur within the preceding 52-week period. This prevents employers from cycling employees in short bursts to avoid the insurance requirement.

Practical Recommendation for 2026

If you are starting or growing a business in Michigan, do not wait until you hit the threshold to think about workers' compensation. Because the "35 hours for 13 weeks" rule can trigger coverage for a single employee, the moment you hire your first full-time staff member, you should begin shopping for quotes.

Furthermore, always maintain an updated file of Certificates of Insurance for every independent contractor you use. During an annual insurance audit, if you cannot prove your contractors were insured, your insurance carrier will charge you a premium for them as if they were your employees, which can lead to massive unexpected bills at the end of the year.

For further information or to verify your specific status, contact the Michigan Workers’ Disability Compensation Agency or consult with a licensed commercial insurance agent specializing in Michigan statutes.