Does My Small Business Need Workers' Compensation in Tennessee?
Tennessee's workers' compensation rules catch a lot of small business owners off guard. Here's who actually needs it, what the thresholds are, and what happens if you get it wrong.
One of the most common questions I get from small business owners in Nashville is some version of this:
“Do I actually need workers’ comp? I only have a few employees.”
The answer depends on what kind of business you run and how many people you have — and the thresholds in Tennessee are lower than most owners expect.
The basic rule in Tennessee
Tennessee requires most private employers with five or more employees to carry workers’ compensation insurance.
But that five-employee threshold has a major exception that catches people off guard.
Construction businesses. If you are in the construction industry — and Tennessee defines this broadly — the threshold drops to one employee. That means if you are a general contractor, a subcontractor, a roofer, an electrician, a plumber, or in any related trade, and you have even one employee on payroll, you are likely required to carry workers’ comp.
This is where I see the most gaps. A small contractor who thinks the five-employee rule applies to them. It doesn’t.
Who counts as an employee
This is where it gets more complicated.
Tennessee counts corporate officers as employees for workers’ comp purposes — unless they formally exclude themselves. That means if you have an LLC or corporation and you are on payroll as an officer, you may count toward your own threshold.
Subcontractors are another gray area. If you hire subcontractors who do not carry their own workers’ comp coverage, Tennessee may treat them as your employees for the purposes of a claim. This is a risk a lot of general contractors don’t fully understand until something goes wrong on a job site.
Part-time employees count too. It’s not five full-time employees. It’s five employees total.
What happens if you don’t have it and should
The consequences are real.
If an employee is injured and you don’t have coverage you were required to carry, you are personally liable for their medical bills, lost wages, and rehabilitation costs — out of pocket, with no insurance backstop.
Tennessee also has penalty provisions for non-compliance. The Department of Labor can issue stop-work orders, which shuts your business down until coverage is obtained.
And if you are in construction and working as a subcontractor for a general contractor, many GCs now require proof of workers’ comp before they will let you on a job site. No certificate, no work.
What if you’re not required to carry it — should you anyway?
Possibly, yes.
If you have even one or two employees and you are not in construction, you are not legally required to carry workers’ comp in Tennessee. But that does not mean you have no exposure.
If an employee is injured at work and you don’t have coverage, they can still sue you. Workers’ comp exists in part to give employees a defined benefit in exchange for not suing their employer. Without it, that protection disappears on both sides.
For a lot of small businesses, a voluntary workers’ comp policy is worth the premium just to close that exposure.
What it typically costs
Workers’ comp premiums are calculated based on your payroll and your industry’s risk classification. A desk-based business pays a fraction of what a roofing contractor pays.
For most non-construction small businesses in Nashville, a basic workers’ comp policy is more affordable than owners expect — often a few hundred to a few thousand dollars a year depending on payroll size and job type.
The right number requires a real quote based on your specific business. That’s a conversation worth having before something happens, not after.
What to do
If you are not sure whether you are required to carry workers’ comp — or whether you should carry it even if you’re not — that’s exactly the kind of question a Coverage Blueprint is designed to answer.
I work with small business owners across Nashville, Brentwood, Franklin, and the surrounding area. The conversation starts with understanding your business, not with selling you a policy.
Book a Discovery Meeting at the link below if you want to sit down and work through it.
Learn more about our Small Business Insurance services.
Enrique Gandara is an independent insurance advisor serving Nashville metro families and small businesses. Nashville Insurance Advisors works by appointment only — no storefront, no quotas, no captive carrier.