A marketing agency generally needs workers' compensation for its employees, even though desk work has a low injury rate. Some states set a minimum headcount or let employers opt out. Premium comes from three things: your payroll, the class code the rating organization assigns, and your experience mod (a multiplier based on past claims that moves premium up or down). After a purchase, report the ownership change, check the payroll estimate and decide how freelancers are treated before the audit decides for you. This guide is for the buyer of an advertising, digital, public relations or media buying agency with a desk-based staff and a bench of freelancers. Class codes vary by state and bureau, and the insurer assigns them, so nothing here tells you which one applies to you.
The short answer
- Whether you must carry workers' compensation is set by state law. Many states require it for employees, some set a minimum headcount, Texas lets most private employers opt out, and North Dakota, Ohio, Washington and Wyoming write it through the state fund.
- Class codes classify the business, not each job. Clerical and outside sales classes can be added alongside the main class (called standard exceptions), but only if the duties fit the definition. Which class governs an agency is for the rating organization and insurer to decide.
- An audit can add freelancer pay to your payroll when they do work that could make the insurer liable, unless they show their own workers' compensation coverage.
- The seller's claims history usually follows the business to you, and the ownership change should be reported to the insurer, in many policies within 90 days.
- Payroll on the policy is an estimate. The final premium is set by audit, and the insurer can audit for up to three years after the policy ends.
Does an office-based agency really need workers' comp?
Usually yes, for its employees. Injury rates are low, but coverage rules turn on state law and employee status, not on how safe the work feels. The U.S. Bureau of Labor Statistics reports 0.6 recordable cases per 100 full-time equivalent workers in advertising, public relations and related services in 2024, against 2.3 for all private industry. That says nothing about severity, event crews or travel.
State rules differ in ways that matter to a buyer. Some states set a minimum headcount before coverage is required, and whether owners count toward it varies. Who must carry it, and who may elect it, differs by state. Texas lets most private employers choose whether to carry workers' compensation, and an employer that opts out must report that it has no coverage. In North Dakota, Ohio, Washington and Wyoming, coverage can only be bought from the state fund, and private insurers cannot sell it. State fund policies there do not include employers liability (cover for suits that follow a worker's injury), so employers usually add a separate stop gap coverage. Some states also use independent rating bureaus instead of the National Council on Compensation Insurance (NCCI).
The workers' compensation page covers the basics, and new owner review: workers' compensation shows what to check.
How are agency jobs sorted into class codes?
Workers' compensation premium is generally a state-approved rate per $100 of payroll for each class, times the payroll in that class, with the mod applied. See what drives insurance cost for a marketing agency for how workers' comp sits beside the other lines. Class codes classify the business of the employer, not each worker's job title. A few standard exception classes can be used alongside the main class if the duties fit. The table uses Massachusetts manual wording and the North Carolina edition of the NCCI manual as examples. Other states and bureaus differ.
| Work in the agency | How the manuals describe it | What to watch |
|---|---|---|
| Desk staff: strategy, writing, design, account management | A clerical office class (8810 in the Massachusetts manual) covers records, correspondence, computer composition and telephone work, in a work area separated from operating hazards | It is a standard exception that applies only if the main class does not already include clerical staff. If every employee works in the office, ask the insurer which class governs the policy and whether the clerical class is being used as the main class, since a standard exception normally sits alongside a different main class |
| Business development who sell away from the office | An outside salesperson class (8742 in the Massachusetts manual) is a standard exception unless the main class includes salespersons | It is not available for people who deliver merchandise |
| Remote and hybrid staff | The North Carolina edition lists a separate clerical telecommuter class | Not every state has one |
| Event crews and sample distributors | Field work sits outside the clerical definition | Ask how the insurer would rate it before the first event, not at audit |
| Sign, display or exhibit production and installation crews | Often rated apart from clerical and sales payroll. The Massachusetts manual rates sign erection by outdoor advertising companies under 9549 and by others under 9552 | Adding a shop or install crew can change the rated payroll |
The Massachusetts classification index, for example, has no class named for advertising agencies or public relations firms, so which class governs your agency is a question for the rating organization and your insurer. Ask which class and code are on your policy and why. The class code glossary explains the system, and workers' comp class code corrections shows how errors are fixed.
Under the NCCI manual as published for North Carolina, one employee's pay can be split between two classes only if records show the actual time and pay in each. For an agency, that matters for event staff who also do desk work. Estimates and percentage splits are not allowed, and without records all of that employee's pay goes into the highest rated class involved. Other states may differ.
How do freelancers show up in the audit?
Freelance designers, writers, editors and developers are central to many agencies. They can also become the biggest surprise on the audit. The insurer's premium base includes pay to your employees. It also includes pay to anyone else doing work that could make the insurer liable. If you have no payroll records for freelancers, the insurer may charge a set percentage of the contract price of their services, set by the manual for the type of work. The charge does not apply if you show proof that the freelancer's own employer lawfully secured workers' compensation. Whether a freelancer's workers could make the insurer liable depends on each state's law.
Status itself is a separate test. The Internal Revenue Service (IRS) looks at behavioral control, financial control and the relationship of the parties, and no single factor decides. State workers' compensation and wage laws can be stricter. California is one example. Under Labor Code section 2778, certain professional services are exempt from California's strict contractor test. The exemption lists marketing work when it is original and creative and depends mainly on the individual's invention, imagination or talent, or when the marketing is an essential part of other contracted work. The hiring entity must still show business factors, such as a separate location, the ability to set rates and hours, and regular work for other clients. Routine production or account work may fall outside the exemption. Other states use other tests. The federal wage and hour test for contractors has changed in recent years, so ask employment counsel which test applies now.
A hypothetical example. An agency uses five freelance designers who work full time on the agency's schedule and tools, with no written contracts and no proof of insurance. Six months after the sale, the workers' compensation auditor and the state unemployment agency both ask about their status. The auditor may add their pay to the premium basis at the agency's class. A buyer who collected the items below at closing has a record to show.
| Item | Evidence it can add |
|---|---|
| Written agreement with scope, term and an intellectual property assignment | One piece of evidence of a business relationship, and an answer to who owns the creative work |
| Proof of the freelancer's own workers' compensation, or evidence of how they are structured | Can remove their pay from your audit, though state law controls |
| Invoices for projects, not timesheets | One piece of evidence on status |
| Evidence of their own tools, location and other clients | Part of the control and relationship tests |
| Annual 1099 totals by person | Lets you reconcile the audit |
No single item decides status. Ask your attorney or accountant how your state and the IRS would view each arrangement. The contracts guide for marketing agencies covers rights assignments in freelancer and client agreements. Read 1099 contractors and the workers' comp audit bill and the agency page on subcontractors and freelancers.
Do I inherit the seller's claims history, and what do I have to report?
Usually yes. In states that use NCCI, when you buy all of the seller's operations, the business's past claims and payroll follow it to you, even through a brand new company, which still counts as an ownership change. If you buy only part, whether the experience moves depends on whether the insurer can split out the data for that part. Report the ownership change to the insurer within 90 days, whether or not a mod applies. NCCI's rules and several state versions of them require it, and failure to report may be treated as an attempt to evade the mod. Under current NCCI rules a recalculated mod applies back to the date of the change, up or down, so reporting late does not protect you from an increase.
- Stock purchase: the entity continues, so the policy, its audit obligations and any audit balance stay with it. A post-closing audit can therefore bill the company you now own for pre-closing payroll, including freelancers, so ask counsel who bears that cost under the purchase agreement.
- Asset purchase: the policy cannot be transferred without the insurer's written consent, so you generally need your own policy in force at closing. The seller's audit balance usually stays with the seller's policy, though the purchase agreement and your counsel decide who bears it.
- Independent bureaus: some use their own route and timing, so ask your insurer which applies.
- Very small agencies: a small agency may have no mod at all, because a state-set premium minimum must be reached first. A small desk-based agency may fall below that threshold, so check whether yours has a mod before spending time disputing one.
See how to check your experience mod for errors and the experience mod explainer.
How do I check the payroll estimate and prepare for the audit?
The premium on the policy is an estimate. After the term, the insurer uses actual payroll and the correct classes to set the final premium, and you pay the balance or get a refund. The insurer can audit records during the policy period and for up to three years after it ends. Payroll generally includes wages, commissions, bonuses and paid time off, and exclusions vary by state.
- Get the last audit and the information page. Note each class, rate and payroll amount.
- Reconcile the estimate to the payroll register. Include bonuses and commissions, which agencies often pay.
- Separate freelancers and keep their documents. Use the table above.
- Keep time records for any production or event staff whose work may sit in a different class.
- File the ownership change report with the insurer and confirm it reached the rating organization.
- Set a calendar date for the audit.
Before you change payroll providers, read changing payroll providers without a workers' comp gap.
Owners and officers: whether a new owner who runs the agency is covered, excluded or optional depends on state law and the entity type, so ask the insurer to show on the policy who is included and what payroll is counted for them. Remote staff: which state's law applies depends on where the employee works, was hired and is based, and states differ. List every state where staff work on the application and ask the insurer how multi-state staff are covered and rated.
Pay-as-you-go billing does not remove audits, and a professional employer organization (PEO) policy changes whose mod is used and may not extend to a buyer's new entity automatically. See pay-as-you-go workers' comp, PEO vs your own workers' comp policy and payroll estimates and audit bills. A Morrow review can compare the class codes, payroll estimate and audit history on the policy you inherited with your actual staff. Any new terms depend on carrier underwriting.
Keep reading
- What Drives Insurance Cost for a Marketing Agency?
- Just Bought a Marketing Agency? What Insurance Do You Need?
- Buying a Marketing Agency: Client Contracts, Licenses and Bonds to Check
- Do 1099 Contractors Count in Your Workers' Comp Audit?
- New Owner Review: Workers' Compensation
- All guides for new business owners
Frequently asked questions
Do I need workers' comp for a marketing agency with only a few employees?
Often, but rules vary by state. Texas lets most private employers opt out. In North Dakota, Ohio, Washington and Wyoming, coverage can only be bought from the state fund. Several states set a minimum number of employees before coverage is required. Florida, for example, requires non-construction employers to carry coverage at four or more employees, counting owners who are corporate officers or LLC members. Check your state's rule with its workers' compensation agency or your broker, and note that a lender or client contract may require coverage anyway.
What workers' comp class code applies to a marketing agency?
That is for the rating organization and your insurer to decide, and codes vary by state and bureau. Clerical and outside sales classes can be standard exceptions when the duties fit. Ask your insurer which class and code are on your policy and why.
Do I inherit the seller's experience mod when I buy the agency?
Usually. In NCCI states the past experience of the business generally transfers to the new owner, including in an asset purchase into a new company when you buy all of the operations. Report the change to the insurer, which many policies require within 90 days, and ask for the recalculated mod in writing.
Will my freelancers show up on the workers' comp audit?
They can. The policy's premium basis includes pay to others engaged in work that could make the insurer liable, unless you show their employer lawfully secured coverage. Written agreements, invoices and proof of their coverage are the usual evidence.
Do I need to cover myself as the owner?
It depends on your state and how you are organized. Some states let owners and officers choose coverage and others count them automatically. Ask the insurer how owners and officers are counted on your policy.
References
- NCCI: Experience Rating Plan Manual, Item E-1411 (Texas edition as filed)
- NCCI: ABCs of Experience Rating
- NCCI: Workers Compensation and Employers Liability Insurance Policy, WC 00 00 00 C
- North Carolina Rate Bureau: NCCI Basic Manual, Rule 2, Premium and Payroll
- North Carolina Rate Bureau: NCCI Basic Manual, Rule 1, Assignment of Classifications
- Workers' Compensation Rating and Inspection Bureau of Massachusetts: class 8810
- Workers' Compensation Rating and Inspection Bureau of Massachusetts: class 8742
- Texas Department of Insurance: Workers' compensation information for employers
- American Academy of Actuaries: Influential Features in the Workers' Compensation System (October 2025)
- IRS: Independent Contractor (Self-Employed) or Employee?
- California Labor Code section 2778 (as published on a public mirror of the code)
- U.S. Bureau of Labor Statistics: Injury and illness rates by industry, 2024
- Florida Department of Financial Services: Workers' compensation coverage requirements
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This article is general information, not legal, tax or financial advice, and not a coverage determination. Coverage depends on the actual policy wording, carrier underwriting, your purchase agreement and your contracts. Ask your attorney and accountant about deal and legal questions.