Are Arizona LLC’s (Limited Liability Company) required to carry workers compensation?

Good question! We were recently asked to look into this question. It seems a small Arizona LLC, with only two members and no employees, had been inspected by the Industrial Commission of Arizona and threatened with fines because they did not have a workers compensation policy in place.

State statute is the place to go for guidance in regards these type of questions so we spent a little time researching Arizona 23-901 and 23-906 only to find no real mention of the treatment of LLC’s. We reviewed the Arizona informational publication titled “Workers’ Compensation Insurance – Employers’ Frequently Asked Questions” and found it helpful in answering many common questions.

Here’s an excerpt from their FAQ’s:

  • “Am I required to have workers compensation insurance if my business is a limited liability company?  If an LLC employs one or more employees, an LLC is required to obtain workers’ compensation insurance for its employees. Employees may include members and managing members.”

Reading this it appears clear that if an Arizona LLC has any employees then they must provide workers compensation insurance. What’s not clear, generated from the second line, is whether members of the LLC are counted as employees or not. The Industrial Commission of Arizona indicated that Arizona statutes do no contain any specific mention of treating employees of an LLC any different from any other employer.

One thing they’re clear about are the penalties for not securing coverage when you should. Subject to some exceptions the first offense for being uninsured is $1,000; second $5,000 and third $10,000. Also subject to a Class 6 felony as outlined in ARS 23-932.

There’s probably many small LLC’s in Arizona, those made up of one or two members, who, believing they are not subject to the act, have not secured a workers comp policy. If there’s any question in your mind at all as to whether or not you need to have a policy I’d suggest you contact legal council familiar with Arizona workers comp statutes and run that question by them! It may just save you from heavy fines and penalties levied on you by the State of Arizona.

Hope this helps you out!