Minnesota
Workers' Comp Exemption

Minnesota starts with one employee—there is no small-employer head-count cushion

Minnesota DLI states that there is no minimum employee count before the workers’ compensation requirement applies. An employer with one part-time employee generally must secure coverage unless that worker fits a statutory exclusion. That makes ‘we only hired one person’ an especially risky assumption in this state.

The rule also means that owner exclusions should be analyzed separately from employee coverage. A business can have a founder who is outside mandatory personal coverage and still need a policy immediately when the first ordinary employee begins work.

Build the file around worker status, not payroll size alone: list each person performing services, identify any §176.041 exclusion with its supporting facts, and insure everyone else who is an employee.

Sole proprietors and partners are excluded owners, while corporations and LLCs have narrower tests

Minnesota’s statute excludes a sole proprietor and a partner from mandatory personal coverage. Those owners may elect coverage for themselves, but their choice does not affect the employer’s responsibility for employees. This is an elective-in model rather than a state-issued exemption certificate.

Corporations and LLCs require more facts. A qualifying executive officer of a closely held corporation can fall within the statutory owner exclusion only when the corporation meets the payroll-hour limitation and the officer meets the ownership requirement. A qualifying LLC manager has a parallel but not identical rule involving LLC size, payroll hours, management status, and ownership interest.

Do not convert the corporate/LLC provisions into ‘all owners are exempt.’ The statute has additional, narrower exclusions for certain relatives and LLC members, and those provisions need their own facts rather than a broad owner label.

For the common officer/manager exclusion, 25% ownership is only part of the test

The common closely held corporation rule requires more than being an officer. The corporation must be within the statute’s payroll conditions and the executive officer must own at least 25% of the stock. Minnesota’s LLC manager provision likewise uses at least a 25% membership interest, a 10-or-fewer-member company, and the prior-year payroll-hour limit.

Because the test includes prior-year payroll hours, eligibility can change even if ownership does not. A company that grows materially can leave the factual lane in which the owner was previously excluded. The same is true when an LLC adds members or a manager’s ownership falls below the statutory percentage.

Keep the cap table, manager/officer record, and prior-year payroll-hour calculation with the coverage file. Those documents explain the exclusion better than a certificate request from a customer ever could.

Owner elections and terminations are insurer notices with a receipt-based effective date

Section 176.041 provides an elective-coverage mechanism for owners who are otherwise outside mandatory personal coverage. The election or termination notice is given in writing to the insurer, and the policy is endorsed to identify the person whose coverage is being added or ended.

The timing rule is precise: coverage or termination takes effect the day after the insurer receives the notice, unless the notice specifies a later date. An election of coverage continues while a policy or renewal policy of the same insurer remains in effect. A carrier change is therefore a sensible point to obtain fresh confirmation rather than assuming the old endorsement migrated automatically.

This procedure is another reason to avoid calling Minnesota an exemption-certificate state. The operational record lives with the insurer/policy, and the statute makes receipt and endorsement important.

Construction businesses have zero-exposure and wrap-up rules DLI describes as applying from 2026

Minnesota adopted additional requirements for employers providing building construction or improvement services that use zero-estimated-exposure policies. DLI describes new requirements applying beginning in 2026: a contractor with such a policy must disclose it in writing to the entity it contracts with and provide a copy of the policy, and recipients have record-retention duties described by DLI. Confirm the current effective date and requirements on the DLI page linked below.

The same 2026 changes also authorize qualifying owner- or contractor-controlled wrap-up programs under specified project conditions. These provisions do not create a new owner exemption. They regulate how certain construction insurance arrangements are disclosed and structured, which is a different issue from whether a founder is personally excluded under §176.041.

For a construction owner, keep the two files separate: owner-status support under §176.041, and project/policy proof under the zero-exposure or wrap-up rules. Mixing them can lead a general contractor to receive the wrong document.

Growth can end an owner exclusion even before the owner changes jobs

Minnesota’s owner exclusions are fact-dependent. For a closely held corporation or LLC manager, prior-year payroll hours, ownership percentage, number of LLC members, and role can matter. A fast-growing company should therefore re-test the exclusion during annual payroll review and after equity transactions rather than treating the original status as permanent.

The first ordinary employee is another immediate reset because Minnesota has no small-employer threshold. In construction, a new project using a zero-estimated-exposure or wrap-up policy creates a separate documentation event even if the owner exclusion itself has not changed.

A practical Minnesota calendar should flag: first hire, year-end payroll-hour calculation, ownership/member changes, insurer change, and any construction project using special policy arrangements. Those triggers map directly to the facts the current sources make important.

What failing to insure actually costs in Minnesota

Minnesota prices its penalty per employee, per week — which compounds fast for any business with more than a handful of workers — and adds a steep reimbursement penalty if a claim ends up paid by the state fund.

The Department of Labor and Industry can order an uninsured employer to obtain coverage, stop employing anyone until it does, and pay a penalty of up to $1,000 for each employee, for each week the employee went uninsured. An employer has 10 days to comply with or contest a department order.

If a worker is injured while uninsured, a compensation judge orders the Special Compensation Fund to pay the benefits, and the employer must then reimburse the Fund plus a penalty equal to 65% of the benefits paid.

• Penalty: up to $1,000 per employee, per week uninsured
• DLI can order the business to stop employing anyone until it obtains coverage
• Special Compensation Fund claims must be reimbursed by the employer plus a 65% penalty on the benefits paid