In most states, workers compensation insurance (workers comp) is legally required. However, depending on your state laws, some types of employees are exempt from needing workers comp, and employers therefore do not have to provide workers comp insurance to them. It is important to note that while it is not required for these employees, determining if your employee truly falls into one of these categories can be difficult.

There are two types of workers comp exemptions: numeric and general. (Remember: These laws vary state to state and you should talk to a lawyer or insurance professional to confirm whether your business needs to purchase workers comp.)

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Numeric Exemption

In this instance, you are exempt from purchasing workers comp until you meet a certain threshold of employees. For example, the law may state the numeric exemption applies if you have fewer than four employees. If you have three employees, you do not have to purchase workers comp.

The number of employees differs amongst the states that have enacted this exemption. Additionally, this exemption doesn’t apply to every industry and often excludes more high-risk industries, such as construction. If you own a construction company and only have one employee, you still must purchase workers comp despite any threshold for exemption.

General Exemption

General exemptions encompass many different scenarios, all relating to your industry or the job position:

Domestics

This exempts you from purchasing workers comp insurance for individuals hired to work around your home: maids, babysitters, landscapers, chauffeurs, etc. Imagine you hire your neighbor’s teenage daughter to babysit your kids for the night. You shouldn’t (and don’t) need to get workers comp coverage for her. If these are the only types of employees you hire, you do not need a workers comp policy.

Casual Laborers

A casual laborer exemption can look very similar to the domestic exemption, but applies to your business rather than your home. This exemption applies to someone who is hired to perform work that is not in the scope of your business. Many people believe this exemption applies to part-time or seasonal workers, but that is incorrect. It applies more to individuals who clean your business building or mow its lawn.

Agricultural Or Farm Workers

This exemption applies to individuals working on your farm or with your agricultural business, but can be misleading. You must consider many factors to determine whether this exemption applies to you, including: whether workers are family members, seasonal, part-time, or full-time; your total number of workers; average pay of workers; how workers are paid, etc. The exemption is designed to benefit family farms by not requiring them to obtain workers comp insurance on their cousins who help out for extra money during busy season. It is not designed to allow major agricultural companies with dozens of employees to avoid obtaining proper coverage.

Real Estate Brokers

You are not required to purchase workers comp insurance to cover your real estate broker. For example, if you’re house shopping and hire a real estate broker, you don’t need to take out an entire workers comp policy on them just to buy a home.

Sole Proprietors And Partners

Sole proprietors and their partners, also called “owners of the business,” are not required to take out a workers comp policy on themselves. This exemption is intended for the actual owners of the business listed on the incorporating documents, not for C-level officers.

Independent Contractors

This is the most used, and misused, exemption in workers comp. Many business owners claim their employees are independent contractors in an effort to avoid purchasing workers comp insurance. Regardless of your personal definition of the role, there is a set of legal factors that determine who is an independent contractor, and you could face serious consequences for violating the workers comp law.

A true independent contractor will provide their services to multiple people. A worker typically won’t qualify as being an independent contractor if you are their sole employer and dictate:

  1. When they come to work

  2. What type of clothes they wear

  3. What type of work they do

  4. When they do their work

  5. What operating systems they use, etc.

If you do have an independent contractor, you are not required to purchase workers comp insurance.

Volunteer Workers

You do not need to provide workers comp insurance for volunteer workers in the private sector. This does not include individuals who work part time or full time for non-profit organizations. This exemption is designed for one-off volunteers, such volunteers for an adoption day event at a dog shelter. If your organization only has volunteers, rather than employees, you wouldn’t need a workers comp policy. However, if you do have employees and take out a policy, your workers comp policy would include your volunteer workers as well.

Leased Workers

Parties in a leasing agreement are exempt from providing workers comp benefits. The employer with the exclusive remedy protection is typically the one required to purchase workers comp insurance. This exemption can be confusing because if you are considered a joint employer under your state’s law, you may be required to purchase workers comp insurance. Ultimately, this exemption is designed for labor contractors, staffing agencies, employee leasing companies, etc. If you think this exclusion applies to you, confirm it by consulting with your insurance broker or business attorney.

Adding Insurance

Even if you only have employees that fall into one of the above exemptions, you can purchase workers compensation insurance that would cover them in case they are injured on the job. An endorsement can be added to your workers comp policy to include your exempt employees. Why? This endorsement can be an incentive to keep employees from leaving your business for a competitor because they know they are protected. Additionally, you can add yourself to the policy. While, as the owner of the business, you aren’t required to take a workers comp policy out on yourself, you may want to in order to gain the added protections in the event you get injured on the job.

The Bottom Line

Violating the workers comp law can have serious consequences, so it is important to get an expert second opinion before deciding if an exemption applies to you. If you have questions about whether you need workers comp insurance, give us a call and one of our experts will take a look at your policy to ensure you are properly covered.