Worker’s comp (short for “Compensation”) is a kind of state-mandated insurance policy that compensates employees who become ill or injured while they’re on the job.
It often covers treatment and rehabilitation and sometimes even financial compensation for dependents of any employee killed in an accident at work. All states require employers to pay for worker’s compensation.
The cost of this insurance hinges on the number of staff you employ. But, some states allow business owners to file for a waiver, which exempts them from such payments.
Could your organization be eligible to be workers comp exempt? Read on to find out!
Workers Comp Regulations
As worker’s comp is managed at the state rather than the federal level, each state has different regulations for who must pay and how much.
For example, some states offer workers comp exemption to small firms. These enterprises only employ very few members of staff.
Whereas other states demand that all business owners buy it for all workers. I.e., it doesn’t matter the size or scale of their organization, they’ll still have to purchase workers comp.
But, it’s common for these states to mitigate some of these costs for SMEs by basing its policy structure on the number of staff they employ.
It’s worth checking the exact specifications in your area. Yet, the majority of states allow the following types of business owners, at least, to opt-out of their firm’s workers’ coverage:
- Sole proprietors
- Members of LLCs
- Shareholders who own more than a certain % of company stock
The most common type of excluded worker is an independent contractor. Namely, because, technically, they should be registered as “self-employed” instead.
The process of filing for a waiver or an exemption will also be different, depending on the state you live/work.
Some states automatically exempt non-employees from having to pay worker’s comp. While others need you to apply for something called a “Notice of Election to be Exempt from Workers’ Compensation.”
Applying for a Waiver
As mentioned above, your state may waive the payment of workers’ compensation automatically if you’re registered as “self-employed” with the IRS.
But, (usually), you’ll need to file “A Notice of Election” with your local regulatory agency. When you are applying to this body for a waiver, you should be prepared to provide them with the following:
- Employee information (including the number of staff on your payroll)
- Details on the type of business you own (industry can make a big difference!)
- Your up-to-date business license
- Proof of ownership
- Contact information for your current insurance provider
If your application is approved, you’re issued a certificate of election for compliance purposes.
But, it’s worth bearing in mind, even if you’re declared exempt by the state’s government, you must still purchase and provide insurance for any members of your staff who don’t qualify employee exemption. This is something different altogether.
For example, let us imagine you’re a sole proprietor who hires freelancers and employs several admin staff.
You can apply for a sole proprietor exemption for yourself, and the contractors with whom you work would be exempt as they’re self-employed.
Yet, you’ll have to buy workers’ comp insurance for the staff you employ directly because, according to the IRS, you’re their employer. Therefore, you’re responsible for their wellbeing while they are work.
It’s also worth remembering that, just because you can apply for an exemption, it doesn’t mean you have to!
What are the Benefits of Worker’s Comp?
Even if you don’t technically need it, it might be worth investing in worker’s comp for your own peace of mind.
To access the benefits of the payment package, employees covered by a worker’s compensation scheme exchange their right to sue you (their employer), for negligence.
Thus, a minimal monthly fee could save you paying very hefty medical bills should an employee get ill or injured in an accident in the workplace.
Do Entrepreneurs and Business Owners without Employees Need to Buy Worker’s Comp?
Well, the rather unhelpful answer to this question is that it very much depends on your ownership status.
If you’re a sole proprietor, partner, or member of an LLC in a company without any employees, you can apply for an exemption based on your ownership status.
But, customers and clients may wish to see proof you’re covered before hiring you. This gives them the reassurance they need that they won’t be liable for your medical bills if you happen to sustain an injury while working for them.
What Are the Penalties for Noncompliance?
Again, they vary from state to state, but (wherever you live), you can expect them to hit you pretty hard! Failure to follow regulations on workers’ comp could result in financial, as well as civil or even criminal penalties.
Some regulatory agencies also have the statutory power to close your business down. That’s until you prove your insurance plan is fully compliant.
Uh Oh, Not Workers Comp Exempt and Not Covered?
If you’re not workers comp exempt, don’t panic. Wesellworkerscomp.com has got your back!
Regardless of your location and any local legislatures, we have a broad range of reasonably priced worker’s comp packages. We have something suitable for all business structures.
Our team of dedicated enrolment specialists strives to get you certified within 24 hours. Don’t wait and risk getting slammed with huge fines. Get in touch today to request a super-fast, super-free quote – speak soon!