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Workers' Compensation Exemptions

All states require employers to carry workers' compensation insurance coverage for their employees. But exemptions exist for certain job categories, high-level employees and some small businesses.

Small Business Workers' Compensation Exemptions

Most states require you to carry workers' compensation insurance even if you have only one employee, but a few offer exemptions to some very small businesses. The number of employees you may have without needing insurance varies by state, but generally ranges from one to five. In some cases, the type of work your employees do may also matter. It is a good idea to check with your labor and employment department to be sure your business qualifies for an exemption.

Job Categories Exempt From Workers' Compensation Coverage

Each state sets its own workers' compensation laws, so exempt job categories will vary. However, many states' rules are similar and commonly include:

  • Casual employees with irregular schedules. Some states also require total annual wages be under a certain dollar amount.
  • Household domestic service employees. In some states, the position may need to be part time.
  • Family members living in the same home as the business owner.
  • Real estate agents or other sales people working strictly on commission.
  • Employees covered under federal programs regarding liability for injury, disease or death.

Also, companies are not required to carry workers' compensation for independent contractors, and those independent contractors are not usually required to insure themselves.

Workers' compensation exemptions can help lower your insurance premiums, so it is natural to want to take advantage of them when possible. But fines for not protecting workers who should be covered can be significant. Fines can be assessed for misclassifying employees as independent contractors.

Employees Eligible to Request Workers' Compensation Exemptions

Business owners and other high-level employees may have a choice of participating or opting out of coverage. Again, state rules differ, but here are some workers commonly allowed to opt out:

  • Corporate officers or directors: Upper-level managers (president, treasurer, etc.) who own a certain percentage of company stock, often at least 10 percent.
  • Limited Liability Company members: The rules often require a minimum ownership interest and a management role in the company.
  • Construction industry officers: Some states define construction as an extra hazardous industry, so may not allow this exemption.
  • Family members: Sole proprietors' family members who do not live with the business owner.

If you are unsure of whether you need to carry workers' compensation for some of your employees, talk with a workers' compensation attorney or business lawyer to protect your business.