Virginia Workers' Compensation for Employers: Three-Employee Rule and $250 Per Day Penalty
An employer that regularly has three or more employees in service in the same business must insure its workers' compensation liability in Virginia. An employer with fewer than three employees regularly in service is outside the Act unless it elects coverage. An employer that is required to carry coverage and does not faces a civil penalty of up to $250 per day, to a maximum of $50,000, and it loses the usual defenses if an injured worker sues.
This guide covers who counts toward the threshold, how a business can secure coverage, what the penalties look like, and what to do next. It is written for owners of small businesses, contractors and anyone deciding whether they have crossed the line. For the general insurance picture, see the State Corporation Commission business resources.
Who Counts Toward the Three-Employee Threshold
The headcount test sits in the Virginia Workers' Compensation Act. Count employees who are regularly in service in the same business. The statute lists several groups who are excluded or counted differently under Va. Code 65.2-101:
- Farm laborers, unless the employer regularly has more than three full-time employees.
- Domestic servants.
- Casual employees.
- A licensed real estate salesperson or associated broker whose pay is substantially all commissions under a written independent contractor contract.
- Certain taxi and executive sedan drivers.
- An executive officer who rejects coverage under Va. Code 65.2-300. That officer does not count toward the headcount.
Industry does not change the count for most employers. Construction firms with two employees are not automatically required to carry coverage, and the same headcount test applies to them. The one industry carved out of the three-employee exemption is underground coal mine operators, who must carry coverage regardless of headcount.
Part-time and seasonal hires raise the hardest questions. The statute speaks of employees regularly in service, so how a particular worker is engaged matters. Confirm how your situation is treated with the Virginia Workers' Compensation Commission before you decide you are under the threshold.
The Statutory Employer Rule for Contractors and Subcontractors
Virginia's statutory employer rule under Va. Code 65.2-302 can make you responsible even when you did not hire the injured worker. An owner who contracts out part of its own trade or business, and a contractor who sublets work, can be liable for compensation to a subcontractor's worker as if that worker were employed directly. The liability can reach down the chain of subcontractors.
In practice, collect proof of workers' compensation coverage from every subcontractor before work starts and keep it on file. Property managers acting only as agents of owners have a carve-out, but whether that carve-out fits your arrangement is a question for the Commission or a lawyer.
How to Secure Coverage
Va. Code 65.2-801 lists the ways an employer can meet the requirement:
- Insurance from an insurer authorized to write workers' compensation in Virginia.
- A certificate of individual self-insurance from the Commission, issued on proof of financial ability.
- Membership in a group self-insurance association licensed by the State Corporation Commission.
- A local government self-insurance pool.
- An agreement with a professional employer organization (PEO) that includes coverage for co-employees.
A PEO must register with the Commission under Va. Code 65.2-803.1. Even if you use a PEO, you keep separate coverage for any employees the PEO does not cover. Read the PEO agreement closely to see which workers fall under its policy.
Most small employers buy a standard policy from an insurer authorized in Virginia. Get quotes from more than one carrier. Premiums depend on your payroll, your class codes and your claims history, so the only reliable number is the one a carrier quotes for your business. This guide does not publish rates.
Penalties for an Uninsured Employer
Va. Code 65.2-805 sets the consequences of failing to insure:
- Civil penalty. Up to $250 per day of noncompliance, with a maximum of $50,000.
- Loss of defenses. While the failure continues, the employer can be sued at law and cannot defend on the negligence of an employee, the negligence of a fellow employee, or assumption of risk.
- Cease and desist order. After 15 days' written notice sent by certified mail, the Commission may order the employer to stop all business transactions until it complies.
Not receiving notice does not excuse the duty. Local licensing officials and the State Corporation Commission must give new employers information about the requirement under Va. Code 65.2-800, but a new business still has to comply even if it never received that information.
Contractors face an additional check. Under Va. Code 58.1-3714, a contractor must certify compliance to get or renew a local business license.
Local Business Licenses Are Not Workers' Compensation
Virginia has no general statewide business license, and the State Corporation Commission issues none. The business license most employers encounter is the Business, Professional and Occupational License (BPOL) tax under Va. Code 58.1-3700 and following. BPOL is a local tax administered by each city or county, usually through the Commissioner of the Revenue. Not every locality levies a general license, because Va. Code 58.1-3704 allows a locality to levy none, and rates and filing deadlines are set locally. Confirm with your local Commissioner of the Revenue whether you owe BPOL, and do not assume a neighboring locality's rules apply to you.
Regulated trades and professions also need state licenses from boards such as the Department of Professional and Occupational Regulation, which are separate from both BPOL and workers' compensation.
Misclassification and Retaliation Risk
Classifying a worker as an independent contractor when the worker is really an employee creates separate exposure. Va. Code 40.1-28.7:7, as amended in 2026, lets an individual who was not properly classified as an employee sue an employer that knew of the misclassification. The individual is presumed to be an employee unless the employer shows that the individual is an independent contractor under IRS guidelines. The time limit is three years. (Verify the 2026 wage-remedy changes with the Virginia Department of Labor and Industry.)
Va. Code 40.1-33.1 bars retaliation against employees who exercise their rights, including rights tied to a workplace injury claim. Treat any decision to discipline or let go an injured worker with care, and document the reasons.
Costs, Benefits and Where to Check Current Figures
Benefit levels in a claim depend on the worker's wages and the statutory weekly maximums and minimums, which change over time. Do not rely on older published figures. Check the current amounts with the Virginia Workers' Compensation Commission at vwc.virginia.gov. For current coverage requirements, claim filing forms and filing deadlines, check with the Commission directly.
Coverage protects both sides. The employee gets medical treatment and wage replacement without having to prove employer fault, and the employer gets protection from most negligence suits by injured workers, as long as the employer is in compliance.
Practical Steps for Employers
- Count the employees regularly in service in your business today and as you plan to hire.
- Check whether any worker falls under an exclusion in Va. Code 65.2-101.
- Get coverage in place before you hire the employee who takes you to three.
- Collect proof of coverage from every subcontractor before work begins, and review your statutory employer exposure.
- Review how your workers are classified, especially anyone paid as an independent contractor.
- Confirm your BPOL obligation with your city or county Commissioner of the Revenue.
- Check the Virginia Department of Taxation site for your state tax registrations if you have payroll withholding obligations.
Important Disclaimer
This guide is informational content, not legal or tax advice. Virginia's workers' compensation statute, the rules of the Commission and local licensing ordinances change, and your situation may turn on facts not covered here. Consult a qualified Virginia attorney or certified public accountant before making decisions about coverage, classification or contractor arrangements, and confirm current requirements with the Virginia Workers' Compensation Commission and the State Corporation Commission before you act.