Almost all employers are required to have workers’ compensation insurance. However, state laws sometimes have exemptions for certain types of workers and business structures.
A business that is exempt from state workers’ compensation laws does not need to provide this coverage to its employees. However, these exemptions are rare.
Most states require businesses to carry workers’ compensation for their employees. Only a few worker categories are sometimes exempt, such as agricultural workers and real estate agents. This exemption can also apply to certain types of business owners – sole proprietors, independent contractors, and members of limited liability companies (LLCs).
Even when workers’ compensation coverage is not required, it’s often in the employer’s best interest to provide coverage. If an employee is injured on the job, the employer could be held liable to pay for expenses associated with medical treatment, ongoing therapy, and lost wages.
In addition, if you get injured on the job, a workers' comp policy can help pay your medical expenses and provide part of the wages you lose during your temporary disability. Your personal health insurance provider might deny your claim if your injury is related to your work, which would leave you paying these bills on your own.
States often offer workers’ comp exemptions to businesses that employ few or no workers. Or they may waive employees who work minimal days a year or earn relatively little. For example:
Beyond exempt employees, there are a few exemptions for business owners. States often allow the following types of owners to opt out of their company’s workers’ comp coverage:
Business owners without employees can be exempt from workers’ comp requirements, depending on ownership status, the clients they serve, and their type of work.
Independent contractors, sole proprietors, business partners, or LLC members in a firm with no employees don’t typically need workers’ compensation. However, clients may request a copy of your workers’ comp certificate of insurance (COI) before continuing any work with you.
But why would a client care about you having workers’ compensation insurance coverage? The answer is simple: liability. If you don’t have coverage and get injured while working for them, they might be held liable. Conversely, say you hire an independent contractor, and neither of you have workers’ comp coverage. Your client could be legally responsible for the worker’s injuries.
As a business owner you might be asking: Do I need workers comp if I have health insurance? The answer is no, and yes, depending on if you operate solely or if you have employees.
While workers' compensation insurance and health insurance both provide protection from illness and injuries, that's where the similarities end.
Workers' comp can provide several benefits if you or your employees are injured on the job or suffer from a work-related illness. And it's required in most states if you have at least one employee.
Health insurance can help pay the medical expenses for non-work related injuries or illnesses if you have fewer than 50 employees, you're not required to offer health insurance. But, if you have 50 or more, you may be obligated to offer this coverage.
When it comes to workers' compensation premiums, you must pay 100 percent of the cost. And with health insurance, you typically contribute a portion of the monthly cost with your employee paying the rest.
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By default, non-employees are often considered exempt from workers’ comp. However, some states may require paperwork to be filed for an exemption, so make sure to check your local laws. Additionally, an exemption cannot be filed for an employee who’s required to have workers’ compensation by law.
For example, assume you’re the owner of a real estate agency, operating as a sole proprietor. You employ 40 commissioned real estate agents and eight office clerical employees. In most states, your workers’ compensation obligations would be:
Upon approval of your exemption, you’ll receive a certificate of election to be exempt.
Even when workers' compensation is not required, it's often in the employer's best interest to provide coverage.
One of the easiest ways to save money on your workers' compensation cost is to make sure that you are classifying your employees correctly. Not only will this help you avoid misclassifying fines, but employees who have a low risk of injury, such as those with desk jobs, generally cost less to insure.
In some cases, small business owners can secure workers’ compensation without paying hefty premiums. For example, a pay-as-you-go workers’ compensation policy provides the same type of workers’ comp coverage as a traditional plan, but with flexible premiums that change throughout the year.
Similarly, a minimum premium workers’ comp policy offers the lowest premium amount an insurance carrier will sell a policy in order to cover its costs. This is ideal for businesses that are considered a low risk for workers’ comp claims and have very few employees.
For business owners exempt from workers’ comp requirements in their state, some may qualify for a workers' comp ghost policy. This type of policy can help self-employed individuals provide a COI without paying for a full workers’ comp policy.
Across all types of business structures, having an updated workplace safety program can also help to keep costs down. A safer work environment often results in less accidents, which can keep your premiums low.
As laws vary across states, so do exemptions. This is why getting workers' comp can be complicated since each state has its own rules. Be sure to work with an insurance provider that’s well-informed about your state’s laws – like Insureon’s insurance experts.
Below are some variations of workers’ compensation laws and exemptions in different states:
Generally, workers’ compensation is mandatory for all employers. California law presumes anyone who works for an employer to be an employee, but coverage is not required for independent contractors.
According to Florida state law, when a business has four or more employees—either full or part time—workers’ comp is required. There are some exceptions, such as sole proprietors and partners. Additionally, construction businesses can exempt up to three corporate officers with at least 10% ownership of the company.
In Arkansas, farm laborers, real estate agents, and domestic workers or employees of religious, nonprofit, or charitable organizations are exempt from coverage. But most businesses with three or more employees are required to carry workers’ comp, as well as those in risky industries (i.e., construction) with fewer employees.
According to New York law, there are very limited instances when an employer would not be required to provide coverage. For example, it’s not required if the business is solely owned, a partnership, or a corporation and they own all stock and offices with no employees.
Every firm with five or more employees, and construction businesses or trades with one or more employees must have workers’ comp in Tennessee. However, sole proprietors, partners, LLC members, and independent contractors are waived from carrying workers’ compensation insurance.
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