Workers compensation is an insurance policy that provides benefits to employees for work-related injuries or illnesses. Understanding workers compensation requirements can be challenging as the definition of an employer-employee relationship can vary by state statute.
Generally, companies with at least one employee on payroll must have workers compensation insurance, but there are exemptions for certain job categories and businesses.
We’ve taken these complex exemptions and made them simple. Keep reading to find out who is exempt from workers' compensation insurance.
1. Fewer Workers than Required by Statute
The District of Columbia and thirty-nine states require every business owner with one worker or more to offer workers’ comp coverage. 11 states, including Florida, Alabama, Georgia, Arkansas, Mississippi, New Mexico, South Carolina, Missouri, Tennessee, North Carolina, and Virginia allow businesses to forego insurance coverage until they exceed a specific threshold for employees.
However, once a business reaches that threshold workers compensation coverage becomes mandatory. Here is the threshold for each of those exempt states:
Florida: 4 employees
Alabama: 5 employees
Georgia: 3 employees
Arkansas: 3 employees
Mississippi: 5 employees
New Mexico: 3 employees
South Carolina: 4 employees
Missouri: 5 employees
Tennessee: 5 employees
North Carolina: 3 employees
Virginia: 3 employees
It’s important to note that in Florida, Arkansas, New Mexico, Missouri, and Tennessee the employee threshold is lowered to 1 or 2 employees if the business works in the construction industry.
2. Job Categories Eligible for Workers’ Compensation Insurance Exemption
In some cases, the type of work your staff does may also play a role in whether or not your business is eligible for an exemption.
Again, each state has its own set of workers’ compensation laws, that’s why job categories applicable for workers’ comp insurance will vary. It’s always important to check with your government office to make sure you’re compliant with all workers compensation requirements. However, here are some cases where employees may be exempt from coverage.
Casual workers or employees with irregular work schedules may be exempt from workers compensation coverage. In some states, there is also an annual income threshold.
In some states, domestic workers can be exempt from coverage, but there may also be an employee threshold or payroll requirements.
Aquaculture, Ranch, and Farm Workers
Some states exclude these types of workers from the “employee” category, meaning they’re typically not eligible for coverage.
Commissioned Real Estate Agents and Sub Agents
Some states eliminate the need to offer workers’ comp insurance protection to real estate agents and sub-agents who are paid on a commission basis.
Here are some other common exclusions for workers’ compensation insurance:
Members of the clergy
Officers of non-profit associations
Musicians and performers
3. Who Can Apply for Workers’ Compensation Exemptions?
Certain employers may have the option of opting out of workers’ compensation insurance. Again, rules vary by state, but here’s a list of those commonly eligible to opt-out of coverage:
Sole Proprietors: Business owners can typically opt out of coverage so long as they have majority ownership in the company. This is because sole proprietors are considered an employer. But upper-level management, such as a vice president are considered an employee and therefore usually cannot opt-out.
Limited Liabilities Companies’ members: Officers or members of an LLC may be able to opt-out of coverage.
The Bottom Line
Workers compensation is a vital piece of coverage that protects not only your business but your employees’ wellbeing. Most companies will be required to carry this policy, but if you think your business is eligible for an exemption always check with the proper authorities.
Keep in mind that even if you are eligible for an exemption, you’ll likely have to file for an exemption through a state-approved board or commission.
Of course, even if you’re eligible for an exemption you can still purchase a workers compensation policy for yourself or your employees. The right insurance providers can help you decide what’s best for your business.
Disclaimer: The information provided here is meant for informational purposes only and should not be substituted for professional or legal advice.