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What Is Workers’ Comp Exemption?

In 2020, there were 4,764 fatal work injuries in the US.

This is a 10.7% decrease from 2019, but the pandemic forced many employees to work from home. This could have affected the reduction and not improved workplace safety.

Regardless, workplace accidents happen. Several business insurance types protect both employers and workers from these accidents. The most common is workers’ compensation.

But, not all employers have workers’ compensation because some businesses qualify for a workers’ comp exemption.

Interested to know more? This article will help you understand this exemption in-depth. Let’s dive in.

What Is Workers’ Compensation Insurance?

Workers’ compensation or “workers comp” is a government-mandated program that provides benefits to employees who become injured or ill on the job as a result of the job. It’s similar to liability insurance.

Workers comp provides both cash and healthcare benefits to workers if there’s a workplace injury. However, each state handles its own workers’ comp regulations. Thus the state-required benefits vary greatly.

Texas is the only state that doesn’t require employers to have workers’ comp insurance.

How It Works

Individual employers pay premiums to private insurance companies for their worker’s comp program. The Worker’s Compensation Board oversees the program and steps in during a dispute.

Each state has its own Workers’ Compensation Board.

Additionally, there are federal workers’ comp programs that cover the following people:

  • Federal employees
  • Longshore and harbor workers
  • Energy employees
  • Coal miners

Workers’ comp benefits vary by state, but some benefits are available to most. The first is salary replacement.

Employees injured while on the job can receive a portion of their salary while out of work. However, the salary replacement is less than the total salary. The most generous programs offer about 65% of the gross salary.

Fortunately, though, workers’ comp benefits aren’t usually taxable at the federal and state levels.

As mentioned, employees will also receive healthcare benefits to aim them in recovery.

Benefits of Workers’ Compensation

Since workers’ comp is a government-mandated program, having it means your business complies with state regulations. This will further protect your company should anything happen to an employee.

Plus, if something does happen, your business won’t have to pay out-of-pocket to help the worker recover. Your employee can access valuable benefits, like those mentioned, without your company needing to suffer further.

Workers’ comp insurance can continue to cover payments if an ailment doesn’t recover completely. It can also help pay for rehabilitation or retraining should the worker need to find a different job.

Finally, workers’ comp has death benefits if an employee dies from a job injury. Surviving family members will receive payments.

Additionally, workers who agree to receive workers’ comp give up their right to sue their employer for negligence. This means your company doesn’t have to spend money hiring lawyers and going to court to defend itself.

This alone offers excellent monetary benefits to your business.

Who Qualifies for a Workers’ Comp Exemption?

As with workers’ comp benefits, each state has its own exemptions. But, there are some standard guidelines.

For example, many states exempt businesses that only employ a few people. In addition, some companies can exempt employees who only work a nominal number of days a year.

States also usually exempt independent contractors and the self-employed.

Self employed workmans comp insurance is available, but not always necessary. Each situation is different, so independent contractors and the self-employed should review what is best for them.

Others, like farmworkers or real estate agents, may be exempt because of the nature of their work. These exemptions may also apply to:

  • Volunteers
  • Government workers
  • Shop owners
  • Railroad employees
  • Maritime workers

States also have exemptions for business owners. The following owners may be exempt from workers’ comp insurance:

  • Sole proprietors
  • Partners
  • Members of limited liability companies (LLCs)
  • Corporate officers who own more than a certain percentage of company stock

To know for sure who is and isn’t exempt from worker’s comp insurance, check your state’s laws or speak with a worker’s comp insurance professional.

Risks to Exemption

Even if you’re exempt from workers’ comp, it doesn’t mean you should automatically apply for it. While you might save on insurance expenses, you could face other costs in the future.

For instance, you are a sole proprietor, and your state exempts you from having workers’ comp insurance. One day, you trip and fall in your office while working. Your health insurance policy says it won’t cover your medical expenses because your injury happened at work.

But because you applied for the workers’ comp exemption, you don’t have any other insurance to cover you and give you benefits while you heal. Thus, you have to pay for your medical costs out of pocket. This, of course, can get very expensive.

Further, not having workers’ comp could prevent customers from working with you. You may be wondering how this affects customers when workers’ comp is employee protection.

Well, if you don’t have coverage and get injured while working for a customer, they may be liable for your medical expenses. Your customer certainly won’t want to be responsible for any injuries that occur while carrying out a job for them.

If you’re thinking about an exemption for yourself as a business owner or any of your employees, ensure you review the risks before settling on your decision.

How To Qualify for the Exemption

Typically business owners need to complete a form with their state’s regulatory agency and pay a fee to qualify. You’ll need to provide information on the type of business you own, your license, and proof of ownership.

If you or some of your employees are exempt, you still need to purchase worker’s comp for employees who aren’t exempt.

Consider Your Exemption Today

A workers’ comp exemption is a great cost-saving maneuver for some businesses. But, it comes with risks. So, anyone exempt should carefully consider the best option for them before deciding.

If you found this article helpful and want more business insights, check out the Business section above.

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