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Who qualifies for a workers’ comp exemption?
Every state has its different rules when it comes to who qualifies for a workers’ compensation exemption. In general, these exemptions relate to the type or number of employees a business has on its books.
Many states offer a workers’ comp exemption to businesses with only a few employees. For example:
- Arkansas exempts businesses with two or fewer employees
- Mississippi gives exemptions for four or fewer employees
- South Carolina exempts when you have three or fewer employees
- Oklahoma gives exemptions for family businesses — employers with five or fewer employees who are family members can be exempt.
Certain employee types can also be exempt, but it’s important to check with your insurance company and state laws to see if they qualify. For example, in some states, if you hire an independent contractor, they could be considered an employee:
- Domestic workers and household workers
- Independent contractors
- Agricultural workers
- Maritime workers
Additionally, depending on how your business is structured, if you hold one of the following titles, you could qualify for a workers’ comp exemption:
- Sole proprietor or self-employed
- Member of limited liability companies (LLCs)
- Executive officer or corporate officer who own more than a certain percentage of company stock
Keep in mind that while this may seem like a long list, it’s extremely specific and varies from state to state.
Most states require business owners to have a workers’ compensation policy. These exemptions are exceptions, special circumstances when the normal rules don’t apply.
How to request a workers’ comp exemption
Depending on your state, if you have a certain number of employees, you need to provide workers’ comp insurance to protect them from financial losses after a work-related injury.
If you want to get a workers’ compensation exemption, it’s important to contact your state department of labor and insurance company to see if your business qualifies.
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 4 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.
The process includes filling out an exemption form and submitting notarized documents. Much like exemption laws themselves, the process of getting an exemption, and the fees associated with it, vary from state to state.
The benefits of workers’ compensation insurance
While there may be times when you can get an exemption, having workers’ compensation insurance coverage can still provide important benefits.
For example, as a sole proprietor, you might not be required to have coverage. But if you get hurt on the job, there’s no one else to keep your business running. Workers’ compensation benefits can help pay for lost wages and medical bills that your personal health insurance might not cover.
Additionally, by offering workers comp, even if you have a small team that doesn’t cross your state’s requirement threshold, you can provide an extra incentive when trying to recruit top talent and show your employees how important they are by taking care of them should anything happen.
Finally, businesses like to work with other businesses that are fully insured.
For example, general liability isn’t a legal requirement in most states, but many businesses will only work with those who have coverage.
Similarly, even if you aren’t required to have a workers’ comp policy, you’ll probably find clients, partners and subcontractors will be more likely to work with you if you can show your employees are covered.
How NEXT helps small businesses with workers’ comp insurance
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