What Are Workers’ Comp Exemptions?

Even though most states require employers to carry workers’ compensation insurance in case their employees get hurt on the job, many offer workers’ comp exemptions for a variety of workers like independent contractors. Knowing which employees are exempt and how to get an exemption can ultimately help you save on your workers’ compensation insurance.

Each state regulates workers’ compensation insurance, so who is exempt depends largely on where your business is located. Your location also partially determines how you go about getting an exemption. States sometimes require you to formally request a workers’ comp waiver, particularly for business owners who are opting out of coverage.

Certain situations, however, are exempt automatically like when a business hasn’t hired the number of employees the law says must be covered. Your employees also may be exempt because of the work they do or the number of days they work in a calendar year.

Who Is Exempt From Workers’ Compensation?

Depending on state law, several different types of workers and small businesses may qualify for workers’ comp exemptions. One common exemption is for employers who haven’t hired the minimum number of employees that make workers’ compensation insurance a requirement. While many states mandate coverage as soon as you hire a single employee—even a part-time one—others wait until you have more staff, say between three and five employees. Below are a few more examples of common exemptions.

Independent Contractors

Most states do not require independent contractors to carry coverage if they have no employees but typically allow them to get self-employed workers’ compensation. Businesses that hire independent contractors usually don’t have to cover them. This may not hold true for businesses in high-risk industries like construction. Meanwhile, if you’re an independent contractor that hires subcontractors, some states like Maine require coverage.

Sole Proprietor

Similar to independent contractors, sole proprietors without employees are typically exempt exempt but may decide they need workers’ compensation coverage for themselves. Those with employees almost always have to cover their workers and can usually include themselves if they want. In Texas, however, sole proprietors are included automatically and have to opt-out of workers’ comp.

Casual Laborers

Many states exempt casual labor from workers’ compensation requirements. Casual laborers are usually defined as workers hired to do tasks that are not part of a business’ normal operations, such as a law office hiring a janitorial crew to clean the office. However, states can have different definitions of casual labor.

Domestic Employees

Workers’ compensation exemptions for domestic employees, such as nannies, personal assistants, and gardeners, also differ by state. There are 30 states that have laws stating coverage for in-home staff is optional, but eight of those include caveats making it mandatory if the employee works a certain number of hours, earns a minimum salary, or lives in the home. Similarly, many of the states that mandate workers’ comp for domestic employees have requirements that may ultimately exempt some workers.

If you are concerned about coverage for those working in your home, talk to your homeowner’s insurance agent first. Many homeowner’s insurance policies have the option to obtain a small workers’ compensation rider for domestic employees at a very reasonable rate.

Commissioned Real Estate Agents

Some states offer a workers’ comp exemption for real estate brokerages that employ real estate agents who work strictly on commission. In-house support staff and salaried workers are not exempt.

Federal Employees

Employees of the federal government, postal workers, railroad employees, and maritime workers are exempt from state workers’ comp regulations because they receive workers’ compensation through federal programs. Seamen, however, are not covered by federal or state laws. Instead, they can seek compensation for work injuries by suing their employers under three separate federal laws.

Other Exempt Employees

The employees mentioned above are some of the more common to receive workers’ comp exemptions. However, each state has its own regulations and may offer exemptions to other employees. Some other exemptions we’ve seen include:

• Volunteers
• Clergy
• Taxicab drivers
• Professional athletes
• Farmworkers
• Musicians and other performers
• Athletic contest officials
• Corporate officers, partners, and members of limited liability companies

A Note About Workers’ Comp Exemptions for Construction

While states grant exemptions for a variety of employees and business owners, many draw a line for high-risk industries like construction. Florida, for example, mandates coverage when a business has four or more employees—unless it’s a construction business. Then, the business owner must have workers’ comp once he has one employee. Illinois requires employers in hazardous industries to get workers’ comp in almost every situation.

Long story short? You need to check your state’s workers’ compensation requirements to make sure you’re in compliance.

How to Get a Workers’ Comp Waiver

In some cases, workers are not subject to workers’ compensation laws. Independent contractors and sole proprietors are good examples of this. But in other situations, business owners have to request a workers’ comp waiver formally. They may have to do this every time they renew their policies too.

The most common way to request a waiver is to file an application with your state’s workers’ compensation board. Many states have started putting the necessary forms online or allowing access through an employer’s portal, but some prefer a hard copy.

Should I Get a Workers’ Compensation Waiver?

Deciding if you should get a workers’ comp waiver comes down to a few essential facts about your business operations. Workers’ compensation can be costly, so opting out when it’s not required may be the right choice if you’re on a tight budget. However, you still have to consider the potential ramifications on your business, especially if:

• You work in a high-risk environment: Employees whose jobs involve manual labor or machinery have a greater chance of being injured at work, and they have the right to sue you for their medical bills and lost wages.
• You hire subcontractors: Some states put the burden of carrying workers’ compensation insurance for subcontractors on the businesses that hire them, particularly if they’re in construction.
• You want to land bigger clients: Many states require businesses to have workers’ comp before allowing them to work on government contracts and public entities. The same is often true in the private sector.

Bottom Line

Workers’ compensation exemptions are defined by state laws and should be reviewed annually to confirm compliance. They can reduce the insurance premiums for small business owners and independent contractors but may leave them open to unexpected costs if an employee suffers a work-related injury or occupational illness. If you are exempt from getting coverage, review the pros and cons before making a decision whether to include workers’ comp as part of your business insurance must-dos.