Who's Eligible for a Workers' Compensation Exemption?

Some business owners and employees may qualify for a workers' compensation exemption, which allows them to opt out of otherwise mandatory workers' compensation insurance coverage. This can include corporate employees, sole proprietors and partnerships. For example, a small bakery proprietor might apply for a sole proprietorship workers' compensation exemption to avoid additional insurance costs.

A workers' compensation exemption is a legal allowance for specific individuals or businesses to opt out of mandatory workers' compensation insurance. Workers' compensation insurance typically covers medical expenses and lost wages for employees who get injured or fall ill due to their jobs. However, only some are required to carry this insurance.

Specific types of business owners and employees are exempt from workers' compensation. Qualifying individuals can avoid the cost and administrative burden of maintaining workers' compensation insurance by filing for an exemption.

Here are some typical examples of employees who may qualify for a workers’ compensation exemption:

• Corporate officers, such as presidents, vice presidents and secretaries, often qualify for a workers' compensation exemption.
• Agricultural workers, such as farm laborers, might be eligible for an exemption.
• Real estate agents and brokers might qualify for an exemption due to their classification as independent contractors rather than employees.
• Domestic workers, such as housekeepers, nannies and gardeners, may qualify for an exemption in some states.
• Independent contractors are often eligible for a workers' compensation exemption because they are not considered employees.

At the same time, certain types of businesses may qualify for a workers' compensation exemption. Common examples include the following:

• Self-employed workers often qualify for a workers' compensation exemption.
• Business partnerships, particularly those without employees other than the partners, may be able to opt for an exemption.
• Family-owned businesses may qualify for exemptions, especially if the employees are all family members.
• Small businesses, particularly those with limited staff or in specific industries, may be eligible for exemptions.
• Some nonprofit organizations can qualify for exemptions, depending on the nature of their operations and the type of work their volunteers and staff perform.
• Businesses that operate seasonally, such as certain agricultural operations or holiday-themed stores, may qualify for exemptions due to their temporary and fluctuating workforce.
• Contract-based businesses, or those that rely heavily on independent contractors rather than full-time employees, may also be eligible for exemptions.

Workers’ compensation exemptions largely depend on the state in which your business operates. California, for instance, exempts sole proprietorships or employees approved for self-insurance only. All other business types, regardless of industry, are required to have workers’ compensation insurance coverage.

If you’re in Florida, workers’ compensation exemptions depend on your industry. Businesses classified as “non-construction industry” require workers’ compensation insurance if there are four or more employees. In contrast, construction businesses need coverage if there’s at least one employee, including the business owner.

In Georgia, businesses with three or more workers, including regular part-timers, need to have workers’ compensation coverage. The only exemptions are sole proprietors and officers or members of a limited liability company (LLC), up to a maximum of five.

Meanwhile, in New York, most businesses must have workers’ compensation coverage, but some exceptions apply. For instance, sole proprietors with no employees do not need to obtain workers’ compensation coverage. While nonprofits with employees must have workers’ compensation coverage for most of their employees, they do not need to, as one example, cover clergy or members of religious orders who are performing religious duties.

Businesses in Tennessee are exempt from getting coverage for farm laborers or domestic help that they employ. Additionally, sole proprietors, partners and members of LLCs are not considered employees and thus do not need workers’ compensation coverage, while corporate officers can choose to exempt themselves.

Filing for an exemption can save your business money, especially if you are a sole proprietor or a small business owner with no employees. It can also reduce administrative tasks related to managing workers' compensation insurance. However, it is wise to consider the risks involved. Without workers' compensation coverage, you or your business may be liable for medical costs and lost wages if you or your employees get injured on the job.

Before filing for an exemption, evaluate your business needs and potential risks. Consider consulting with a financial advisor or insurance professional to make an informed decision that is aligned with your business operations and financial situation.

If you don't file for an exemption and are eligible, you may unnecessarily pay for workers' compensation insurance you don't need. This can lead to higher business expenses and reduced profitability. Additionally, you might miss out on the streamlined administrative processes that come with being exempt from workers' compensation requirements.

On the other hand, if you are required to carry workers' compensation insurance and fail to do so, you could face legal penalties, fines and increased liability. If a workplace injury occurs without proper insurance, you would be responsible for all related expenses, which could severely impact your business.

While workers' compensation insurance can be a significant expense for small business owners, opting out of coverage altogether could leave you vulnerable to various risks. If you choose to exempt certain employees, independent contractors or other types of workers from workers' compensation insurance, you assume all financial responsibility for any workplace injuries that may occur. This means that if a worker is injured on the job, you could be held personally liable for all costs related to that injury, including medical bills and lost wages.

In some cases, even a minor workplace injury can result in high costs for a business owner. For example, a simple slip-and-fall accident could result in expensive medical bills, rehabilitation costs and lost wages if the worker cannot work for an extended period. Not having workers' compensation insurance to cover these costs means you may have to pay out of pocket or risk facing legal action from the injured worker.

Overall, it's best to carefully consider the potential risks and costs associated with opting out of coverage before making a decision.

Below, we answer some of the most common questions about the people and businesses eligible for workers' compensation exemptions and how these exemptions work.