Virginia Workers’ Comp Requirements: The Three-Employee Rule and the Mistakes That Break It

Virginia requires workers’ compensation once a business has three or more employees regularly in service. Below that, the Act generally does not apply. Most Virginia owners know the number. The problems come from counting wrong, from subcontractors, and from assuming a farm or a household is always exempt. This guide covers the rule first and then the six most common mistakes.

Virginia workers' comp at a glance. Who must have coverage: 3 or more employees. If you go without: Civil penalty of up to $250 a day, capped at $50,000.

The rule

Virginia Code § 65.2-101 defines who is an “employee” for workers’ compensation purposes. Its exclusions include employees of any person, firm or private corporation that has regularly in service less than three employees in the same business. Flip that around and you get the coverage rule: three or more employees regularly in service means the business is subject to the Act.

Once you are subject to the Act, § 65.2-800 is short and blunt. Every employer subject to the compensation provisions “shall insure the payment of compensation to his employees.” You do that with a policy from an authorized carrier or by qualifying to self-insure.

Mistake 1: Counting only full-time staff

The statute says “regularly in service.” It does not say “full time.” A retail shop with one full-time manager and two students who work every weekend has three people regularly in service. If you have a steady part-timer on the schedule, put that person in the count.

Seasonal spikes are a judgment call. If you add a third person for two weeks every December and never otherwise, talk to your agent. If you add a third person most months, you are over the line.

Mistake 2: Leaving owners and officers out of the count

Corporate officers who are paid are employees under Virginia law. The statute lets an executive officer reject coverage only if that officer is not paid a salary or wages on a regular basis at an agreed amount. An officer who draws a regular paycheck cannot simply opt out.

Sole proprietors, partners and LLC members are in a different position. They are not automatically employees, but the statute lets them elect coverage through the business’s insurer. That election protects the owner personally. It does not count toward the three.

Mistake 3: Assuming subcontractors are someone else’s problem

Virginia’s statutory employer rule in § 65.2-302 is broad. When an owner contracts out work that is part of its own trade or business, the owner is liable to pay any worker employed in the work the compensation it would owe if it had hired that worker directly. The same applies down a chain of contractors and subcontractors.

In practice, this means a general contractor whose drywall sub has no policy may end up paying the drywall crew’s injury claims. The Code gives you a path to recover from the subcontractor, but that only works if the sub can pay. The simple fix is to require a current certificate of insurance before anyone sets foot on the job, and to check it again at renewal.

Mistake 4: Treating every farm as exempt

Farm and horticultural laborers are excluded unless the employer regularly has in service more than three full-time employees. Note the different wording. For farms, the line is more than three, and the employees must be full time. A nursery with four full-time workers needs coverage. A family farm that hires two seasonal helpers each summer generally does not.

Mistake 5: Forgetting the other exclusions are narrow

The statute also excludes casual employees, domestic servants, certain licensed real estate salespeople and brokers paid by commission under qualifying agreements, and taxicab or executive sedan drivers when the Commission has proof they are excluded from federal unemployment tax. Each exclusion has conditions. A “casual” worker who comes back every week is not casual, and a real estate agent on a salary is not covered by the commission-based exclusion.

Mistake 6: Letting the policy lapse

A lapse is noncompliance. Under § 65.2-805(A), an employer that fails to comply with the insurance requirement can be assessed a civil penalty of up to $250 for each day, with a maximum of $50,000. The Virginia Workers’ Compensation Commission assesses the penalty in a hearing, with the right to appeal.

If the failure continues after a finding and 15 days’ written notice by certified mail, the Commission can order the employer to cease and desist all business operations. Half of every civil penalty goes to the Commission’s administrative fund and half to the Uninsured Employer’s Fund, the pot that pays injured workers whose employers had no coverage.

Separately, an injured worker of an uninsured employer can still pursue a claim. If the Uninsured Employer’s Fund pays, the state goes after the employer for what it paid.

Example: how fast the penalty grows

A Richmond painting contractor with four employees switches agents in January and the new policy does not start until mid-April. That is about 100 days without coverage. At the maximum daily rate, the exposure is $25,000, half of the statutory cap, before counting any injury. If one of the painters falls from a ladder in March, the medical bills and wage benefits come on top of that. If the contractor was itself a sub on a larger job, the general contractor may be pulled in as statutory employer, which is a good way to lose that client.

When someone gets hurt

Under § 65.2-900, the employer must report injuries to the Commission within ten days. The report covers the worker’s name, age, wages and occupation, the date and time of the accident, and the nature and cause of the injury. In most cases your carrier files it electronically once you notify them, so call the carrier the day you learn about the injury.

Short checklist

Count everyone regularly in service, part-timers and paid officers included.
If you are at three or more, confirm your policy is active with no date gaps.
Collect certificates from subs before work begins.
Farms: count full-time workers only, and the trigger is more than three.
Report injuries through your carrier within ten days.

Related guides

Sources

Last checked against the sources above on October 2, 2026. Laws change, so confirm with the Virginia Workers’ Compensation Commission or a licensed agent before making coverage decisions.

Written by Kevin Garcia de Paz

Independent researcher, not a licensed insurance agent or attorney. Every article on WorkCompByState is based on official sources listed on the page. How I research · Report an error