Workers' Compensation Exemption: Everything You Need to Know

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All employers, regardless of trade and company size, need to ensure that employees are well protected from any harm or danger at work. Accidents can strike anytime without warning, and the liabilities associated with it can put a considerable dent in your finances.

This is where Workers’ Compensation insurance becomes extremely handy. Read on to know more about this policy and if your small business is eligible for Workers’ Compensation Exemption.

What is Workers' Compensation?

The primary goal of Workers’ Compensation is to protect employees in case an accident or injury happens on the workplace. It pays for medical expenses such as rehabilitation costs related to the injury and financial compensation for lost wages until the employee becomes physically able to work again. Employees who avail this policy renounce their right to sue the employer for any negligence or legal claims. In this manner, it protects the welfare of both the employee and the employer.

Although mandated by law, not all businesses are required to have this policy. Depending on the state in which your business operates, your company might be eligible for Workers’ Compensation Exemption. For example, in Alabama, small companies with less than three employees are not required to carry it. But in Illinois, this insurance is strictly observed in “every work situation.”

Are you Qualified for Workers' Compensation Exemption?

To know if your business needs Workers’ Compensation insurance, it is best to contact your Division of Workers’ Compensation thru the US Department of Labor website. Most of the time, independent contractors in the construction industry are the ones exempt from this policy. This is because they are classified as self-employed individuals, not employees, even though the term “employee” is used.

Each state has its own rules and regulations when it comes to Workers’ Compensation Exemption. But generally, when the employee is classified as an independent contractor or casual laborer, he or she is not entitled to Workers’ Compensation. The same rule equally applies to

  • domestic employees
  • those working on farms
  • commissioned real estate agents
  • performers
  • athletes
  • and many more.

Keep in mind that Workers’ Compensation Exemption is a legal way to provide an exclusion for certain businesses and individuals from obtaining this policy. Primarily, the officer of a corporation files for an exemption to exclude themselves from the said law. In some states, independent workers who are not obliged to have Workers’ Compensation are otherwise required to declare that they are “free from control” for specific professions.

Again, worker's compensation exemption heavily relies on the state rules and regulations. Even if you are a small company with casual laborers, you may or may not be qualified for an exemption. It is still best to double check with the US Department of Labor website before applying for Workers’ Compensation Exemption as certain fees will be incurred as part of the declaration.

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