Apply for a Workers’ Comp Exemption at Your Own Risk

Here’s what you might already know: Workers’ compensation is a type of business insurance required by law in many U.S. states. It covers the cost of medical expenses, lost wages, and potential legal fees associated with an on-the-job injury or illness. 

Here’s what you may not know: Although the law protects the majority of businesses and employees, certain employers can choose to opt out of workers’ compensation insurance by applying for a workers’ comp exemption.

A workers’ comp exemption means that a business or a worker does not legally have to secure workers’ comp coverage. For employers, this means that they are not responsible for providing workers’ compensation coverage to certain employees, like independent contractors. For employees looking for a workers’ comp exemption, such as a subcontractor, this means that they are not covered in the event of an on-the-job injury or illness. 

Does My Company Qualify for an Exemption?

Workers’ compensation insurance is regulated by state governments, and every state is different in terms of which types of businesses and employees qualify for exemptions. However, there are some types of companies and workers that are generally exempt, such as: 

  • Independent contractors
  • Sole proprietorships
  • Partners
  • Members of LLCs
  • Businesses that employ very few or no workers
  • People who work few hours or make little each year
  • Volunteers

You may view a complete list of who qualifies for exemptions on this list.

What If My Company Doesn’t File for an Exemption? 

If you choose not to file for an exemption, you have two options: (1) find an insurance provider that can offer workers’ comp coverage or (2) risk noncompliance penalties from the state.

Because workers’ compensation insurance provides much-needed protection for both businesses and employees, states take noncompliance very seriously. Failure to secure coverage could result in fines, criminal charges, and state-ordered closure of your business. 

That said, each state’s process for screening and approving workers’ compensation exemption is different. You will need to contact your state’s workers’ compensation office to determine the exact steps.

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Typically, filing for an exemption involves filling out forms and providing information about yourself and your company. Proof of business information may be required, including business licenses, contact information, proof of ownership documents, and the like. Once you file these documents, your state will either approve or deny your exemption. 

Should My Company File for an Exemption? 

For many small-business owners, the idea of not having to pay workers’ compensation premiums can be appealing. However, there are some important factors to consider before applying for an exemption, as there is inherent risk in not having coverage. 

For example, sure, you  might save money due to not paying a premium for insurance, but if a worker is injured while on the job, it could mean devastating financial consequences for your business. Even a basic trip-and-fall can result in expensive medical bills and lost wages.

Bottom line: Can you file for an exemption? Maybe. Should you? Probably not. 

Tracey Berg is the president of Cerity, a workers’ compensation insurance provider founded with a bold vision to reimagine small business insurance. With its digital-first approach, Cerity is transforming the entire process to empower business owners to quickly and easily protect their team, their assets and their livelihood through an online workers’ compensation solution. Follow Tracey on Twitter @Tracey_L_B. 

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