Who qualifies for a Workers’ Comp exemption?
Most states require business owners to carry workers’ compensation coverage for their employees. Workers’ comp exemptions are specific circumstances when these normal rules don’t apply. Because workers’ compensation laws are administered at the state level, exemption requirements can change when legislatures update coverage rules, worker classifications or filing requirements.
Before relying on an exemption, check the latest requirements in the state where your business operates. Here’s an overview of some of the more common exemptions:
Workers’ Comp exemptions based on number of employees
Some states offer a workers’ comp exemption to businesses below a certain employee threshold. For example, Arkansas exempts businesses with three or fewer employees.
Some states also have special exemption rules based on number of employees, like
Oklahoma which gives exemptions for family businesses with five or fewer employees who are family members.
But the specific number of employees for exemptions vary and thresholds can change when state laws are updated so make sure you’re up to date on the most current requirements by visiting the U.S. Department of Labor’s directory of state workers’ compensation agencies.
Workers’ Compensation exemptions based on industry
Certain employee types can also be exempt, but it’s important to check with your insurance company and state laws to see who qualifies. For example, in some states, if you hire an independent contractor, they could be considered an employee.
Across states, here are some of the workers who can sometimes be exempted from workers’ comp:
- Volunteers
- Domestic workers and household workers
- Independent contractors
- Agricultural workers
- Maritime workers
Workers Comp exemptions based on business structure
Depending on how your business is structured, you could qualify for a workers’ comp exemption.
if you hold one of the following titles, you may be exempt:
- Sole proprietor or self-employed
- Partner
- Member of a limited liability company (LLCs)
- Executive officer or corporate officer who owns a percentage of company stock
For example, in Vermont, all employers with one or more employees — whether full- or part-time — must carry workers’ comp coverage. However, the state provides an exemption for up to four members of an LLC.
So if you own an LLC in Vermont that has employees, you’ll have to provide them with workers’ comp. But if you want to legally avoid having to purchase workers’ comp for yourself, you can request an exemption.
How to request a Workers’ Comp exemption
If you want to get a workers’ compensation exemption, contact your state department of labor and insurance company to see if your business qualifies.
In most states, requesting an exemption requires completing a workers’ comp exemption form, often called a Certificate of Election to be Exempt. The specific form varies by state, but you can typically find it through your state’s Department of Labor or Division of Workers’ Compensation. Some states process exemption requests online, while others charge a filing fee and require paper submissions with notarized documents.
Even if your business qualified previously for an exemption, exemptions aren’t automatic. Typically your exemption will need to be renewed on a regular basis.
The benefits of Workers’ Compensation insurance (even if it’s not required)
Even if your business qualifies for an exemption, workers’ compensation insurance coverage can still provide important benefits to help protect your employees, yourself and your business investment.
If you have a small team that doesn’t cross your state’s requirement threshold, offering workers’ comp as an extra incentive can help you recruit top talent and show your employees that you value their work.
Carrying workers’ comp coverage can also create business opportunities. Other businesses often like to work with partners and subcontractors that are fully insured. The extra layer of protection and the professionalism it demonstrates could help you find new partners and clients. For example, if you have a small lawn care business, prospective new customers may be more interested in hiring you if they know you carry the proper coverage — which could provide protection if one of your workers gets hurt on the job on their property.
Even if you’re a sole proprietor who’s not required to have workers’ comp coverage, it can still be a good idea. If you get hurt on the job, how will you pay for medical expenses and who will keep your business running? Workers’ compensation benefits could help pay for lost wages and medical expenses. Chances are that your personal health insurance won’t provide this kind of coverage.
And the cost of carrying coverage may be lower than you think. Workers’ compensation claim frequency fell 6% in 2024 — the lowest level on record, according to the National Council on Compensation Insurance (NCCI). Fewer claims can translate to more affordable premiums.
For a sole proprietor or exempt business owner who’s on the fence about whether or not to get coverage, now is a good time to get a quote to see how much workers’ comp could cost for your business. Learn more about workers’ comp costs at ERGO NEXT.
