Every single business is required to have workers’ compensation insurance, right? Well, it depends. While it’s required by the state in some situations, in others it might not be so cut and dry. If you’re a business with no employees, or if you hire certain categories of employees, you could qualify for a workers’ comp exemption. If you’re considering opting out of one of these policies, then you need to know if you can do it, how you can do it, and whether you should do it.
Who Qualifies for a Workers’ Comp Exemption?
Most states require that most businesses cover most employees with a workers’ comp policy. This type of insurance is beneficial to everyone involved: workers will have their expenses paid if they are injured on the job, employers are protected from lawsuits, and the state will have fewer people needing financial assistance because they have been taken care of by their employer.
Although this type of insurance is generally required, there are a few instances in which you may be exempt from having it. For example, certain types of workers do not need to be covered by workers’ comp in most states. This includes:
- Employees who only work part of the year, or who earn very low salaries, including agricultural workers, and some domestic workers.
- Real estate agents
- Independent contractors, which is one of the main categories of workers that employers obtain exemptions for. This type of worker is contracted to perform work or provide services to a business, but is not considered an employee.
Certain types of business owners can also get exemptions. This includes:
- Sole proprietors – this simply means a person who owns a business and is personally responsible for its debts.
- Members of limited liability companies (LLCs)
- Corporate officers who own more than a certain percentage of company stock
Always make sure you refer to your state’s workers’ comp laws, or talk to one of EZ’s agents so that you can be sure you’re in compliance with the law.
How Do Workers’ Comp Exemptions Work?
Don’t simply assume that you or an employee is exempt from being covered by workers’ comp. While some states automatically exempt non-employees, in many cases you need to fill out a form from your state’s regulatory agency and pay a processing fee in order to be officially exempt. Remember, it may also be the case that only some of your employees are exempt – if this is true for your business, then you’ll still need to buy workers’ comp for the employees that aren’t exempt.
For example, let’s say you’re the sole proprietor of a real estate agency, but you also employ commissioned real estate agents and a few administrative workers. In most states:
- You could choose to apply for a sole proprietor exemption for yourself
- Your commissioned agents would be exempt because they are independent contractors
- You would have to purchase workers’ comp insurance for your administrative staff
Remember also that you may be eligible for an exemption, but you do not have to apply for it. You may decide that the benefits of having workers’ comp outweigh the costs.
Should You Purchase Workers’ Comp?
To exempt or not to exempt? The main advantage of not having workers’ comp for yourself or your employees is that you won’t have to pay the monthly premiums required to maintain your policy. But are the savings worth it?
When it comes to employees that are technically eligible to be exempt, you might decide that the cost of premiums is worth it. Offering the protection of a workers’ comp policy can mean boosted morale, as well as a workforce that is able to return to work more quickly after an injury or illness. In addition, if you aren’t offering workers’ comp because you’ve classified your workers as independent contractors, you need to be 100% sure that you have correctly classified them before you exempt them. You could be hit with large penalties if the IRS and other government agencies determine that they should have been classified as employees.
And if you’re a sole proprietor, or a business owner without any employees? Sure, in most cases you can apply for exemption, but think carefully before you choose not to purchase workers’ comp. A workers’ comp policy would help pay for medical expenses and lost wages if you were injured on the job. Think also about the nature of your business and your relationship to your customers or clients: depending on the kind of services you offer, some customers may actually request to see your proof of workers’ comp insurance. Why? Because if you are injured while working for them, and you don’t have coverage, then they might be liable for your medical expenses.
As a business owner, your first instinct is usually to save money whenever you can. It’s only natural! But the choice to opt out of workers’ comp insurance is complicated, so don’t automatically choose to apply for an exemption. If you’re not sure what’s right for you, talk to one of EZ’s agents. We’ll look at your situation, and if you decide that workers’ comp is the way to go, we’ll find you a great policy – and we’ll do everything for free! To get started with us, simply enter your zip code in the bar above, or you can speak to an agent by calling 888-615-4893.