If your Vermont business employs family members in your trade or business, yes, you generally need workers compensation insurance for them, the same as for any other employee. Vermont has no general family-member exception, so a relative you employ for pay is an employee, and coverage is required once you have one under 21 V.S.A. 687. The only real breaks are for family members who are owners, or for narrow categories of work like casual or domestic help, not for family members you put on the payroll.
Who this is for: Vermont owners of family-run businesses, where the workers are a spouse, children, parents, or other relatives rather than outside hires.
The short version
- Family members you employ for pay in your business are employees and must be covered once you have one.
- Vermont has no general family carve-out; the rule turns on working for pay, not the relationship.
- Family members who are owners follow the owner rules: sole proprietors and partners elect in, while corporate officers and LLC members are covered by default and can exclude up to four on Form 29.
- Health insurance often excludes work injuries, which leaves a gap for a hurt family worker.
- Going without required coverage brings the same fines and lawsuit risk as any business.
Family workers in your business count
Vermont does not give a family business a pass. If your spouse, adult child, parent, or cousin works in your trade or business for pay, they are an employee, and coverage is required just as it would be for a stranger you hired. There is no broad household or family exemption in the workers comp law, so running a diner, a shop, or a contracting business with your relatives puts you under the normal rule. If a relative is instead an owner, their owner rules apply. And Vermont does have a few narrow carve-outs that turn on the type of work rather than the family tie: casual work that is not part of your trade, and domestic service in a private home, can fall outside the rule, but a genuinely unpaid situation is a separate question you should confirm with the Department of Labor rather than assume.
Family in the business vs family who are owners
| Who | Is comp required? | Notes |
|---|---|---|
| Relative working for pay in your business | Yes | Treated as an employee, covered once you have one |
| Relative who is a corporate officer or LLC member | Covered by default | Up to four owners may be excluded by filing Form 29 |
| Relative who is a sole proprietor or partner | Not required | May elect to include themselves in a policy |
| Relative doing casual work outside your trade, or household work in your home | Often carved out | These narrow carve-outs turn on the type of work; confirm with the Department of Labor |
Where the real gap shows up
Many owners assume family health insurance will catch a work injury, but health plans commonly exclude injuries that happen on the job, and none replace lost wages the way comp does. If your spouse breaks an ankle working in the shop, a health plan may deny the claim as work-related, leaving the bill and the missed income on the family. Workers comp is built for exactly that. And because a family business is under the normal rule, skipping coverage exposes you to fines of up to 100 dollars per day the first week and 150 dollars per day after, a stop-work order, and a lawsuit if a relative or any worker is hurt while you have no policy.
A Colchester example
Illustrative, not a quote. A Colchester family runs an auto repair shop staffed by the two owners and their adult son, who works as a technician for pay. They skip workers comp, thinking family injuries are their own affair. When the son is burned on a hot exhaust and needs surgery, their health plan denies the claim because it happened at work, and the bills and his lost wages fall on the household, on top of the state fines for being uninsured. Realizing the gap, they buy a policy covering the son as an employee and, because the shop is a corporation, they keep the two owner-officers on the policy too rather than excluding them, so their own injuries are covered. We rate the auto repair payroll so the premium fits a small shop. See our workers comp for auto repair shops page.
Real questions Vermont owners ask
Do I need workers comp if I only employ family in Vermont?
Generally yes. Family members you employ for pay in your business are employees, so coverage is required once you have one. Employing relatives does not exempt you from the rule.
Is there a family exception in Vermont?
There is no general one. Vermont's rule turns on working for pay, not the family relationship, so relatives you employ in your business are treated as employees like anyone else.
Are my adult children covered if they work in the business?
Yes, if they work for pay in your trade or business, they are employees and must be covered. Their family relationship to you does not remove the coverage requirement.
Will our family health insurance cover a work injury?
Often not. Many health plans exclude injuries that happen on the job, and none replace lost wages the way comp does. That gap is a common reason family businesses decide to carry workers comp.
What if a family member is also an owner?
Then their owner rules apply. A sole proprietor or partner may elect to include themselves, while a family member who is a corporate officer or LLC member is covered by default and can be excluded, up to four owners, by filing Form 29.
What if my relative works but I do not pay them?
That can change the answer, since the rule looks at pay for service. Do not just assume an unpaid family helper is exempt; confirm the arrangement with the Department of Labor before you skip coverage.
What happens if we skip coverage and a relative is hurt?
A family business is under the normal rule, so you face fines, a stop-work order, and a lawsuit, plus a health plan that may deny a work-related injury and leave the cost on the family.
Why Vermont owners choose Morrow
- We shop the right market for you. In Vermont you buy workers' comp on the open market from any private carrier licensed in the state, because there is no state fund, and if no carrier will take you the NCCI-run Vermont Workers' Compensation Insurance Plan (the assigned risk pool) is the guaranteed fallback, so we can shop your rate freely and still have a backstop for hard-to-place work.
- We catch pricing mistakes. Your price depends heavily on the category your work falls into for pricing (the class code). Put people in the wrong category and you overpay for years. We review your payroll and classifications before you buy.
- Proof of coverage, fast. Need a certificate (proof of coverage) for a general contractor or a landlord before Monday? We turn those around the same business day for most carriers.
- We help lower the score that drives your price. Insurers give you a score based on your past claims that raises or lowers your cost (the experience modification rate). We review it each year, flag errors, and connect you with return-to-work and safety resources that bring it down.
- Real people when a claim happens. When someone gets hurt, we stay involved through the life of the claim, not just at renewal.
Related Vermont guides
Every Vermont business is set up a little differently. These companion guides answer the same question for other situations, plus the national explainers behind the terms used here.
- Business insurance in Vermont (start here)
- Workers comp: the owner's overview
- I own an LLC: do I need workers comp?
- I'm a sole proprietor: do I need workers comp?
- I own a corporation (C-corp or S-corp): do I need it?
- We're a partnership: do we need workers comp?
- We're a nonprofit: do we need workers comp?
- My workers are 1099: do I still need it?
- Only part-time or seasonal staff: do I need it?
- Remote or out-of-state staff: do I need coverage?
- What happens if I don't carry workers comp?
- How much does workers comp cost?
- How do I get workers comp (even if turned down)?
- What insurance do I need for a contractor license?
- Workers compensation insurance, explained
- What workers comp costs (national guide)
- Do sole proprietors need workers comp?
- Hiring your first employee: what changes
- Vermont auto repair workers comp
This guide is general information, not legal advice. Vermont rules and penalty amounts can change, so verify current requirements with Vermont Department of Labor, Workers' Compensation and Safety Division or a licensed advisor before you rely on them. Last updated: July 2026.