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Workers’ Comp Exemption Explained

Workers’ Compensation is an essential type of commercial insurance coverage for most businesses, but not everyone is required to have it.

To give you a better understanding about what workers’ comp exemptions are, we’ll be discussing:

The professionals who may qualify for an exemption.
Varying state laws in regards to exemptions.
How to file for an exemption.
The risks of opting out of.

Let’s take a look!

Common Workers’ Comp Exemptions

Workers’ compensation coverage is an essential type of commercial insurance, protecting employees against the costs involved with workplace injuries. While it is legally required in almost all 50 states, certain businesses and individuals are allowed to opt out. Doing so can help small businesses in particular save money, but also comes with some risks.

Now let’s start by exploring the most common exemptions:

Independent Contractors and Sole Proprietors

Since sole proprietors and independent contractors work for themselves, they have no employees. Because of this fact, many states allow them to opt out of workers’ compensation requirements.

Corporate Officers and Owners

High-level executives such as owners of large corporations and corporate officers oftentimes qualify for a workers’ comp exemption. It’s important to note that in this situation, the executive alone won’t receive workers’ compensations benefits, but normal employees are still required to.

Family Members in Family-Owned Businesses

In some states, immediate family members who work for a family business may be able to opt out of workers’ comp requirements. For example, a spouse or child who

works for their family’s restaurant may be eligible for an

exemption in many cases.

Seasonal or Casual Workers

For some professions, work tends to be short term depending on the industry, specific season, or special circumstances. Many states allow workers, who are seasonal or temporary, to opt-out of workers’ compensation requirements. In these situations it’s important to read about the industry-specific requirements in addition to the state requirements.

Agricultural Workers

In some states farm laborers and other agricultural workers can be exempt from workers’ comp requirements. Similarly to temporary workers, it’s important to read up on specific agricultural laws in your state to make sure you’re legally compliant.

State-by-State Workers’ Comp Exemption Variations

As briefly mentioned, each state has its own separate laws in regards to workers’ compensation requirements. While we won’t go through every state’s specific laws, you can find more detailed information by looking at our Workers’ Compensation Insurance Rates and Coverage by State overview.

Here are some examples of states with unique workers’ compensation laws:

Texas: Private employers don’t have to provide workers’ compensation coverage at all (they are the only state with this law).
Florida: While construction workers usually face stricter requirements than in many other states, sole proprietors can apply for exemptions.
California: There are very few exemptions allowed. One of the only types of professionals who may become exempt with specific circumstances are corporate officers.
New York: While sole proprietors are exempt, many specific types of contractors must be covered.
Pennsylvania: Unless they employ other people, sole proprietors are exempt.

*It’s important to always check with your state’s labor and workers’ compensation board to fully understand the specific exemption requirements for your state and industry.

How to File for a Workers’ Comp Exemption

Apply: After finding out if you and your business are eligible for workers’ comp exemptions, you’ll need to apply through your state’s labor department or workers’ compensations board. This is usually as easy as filling out a lengthy application, but sometimes requires a sworn affidavit.
Required Documents: During the application process you’ll likely need to provide some specific documentation. Standard document requirements include proof of business ownership, proof of family relationships (for family-owned businesses), or proof of your independent contractor status.
Exemption Renewal: Most states require you to renew your workers’ compensation on a periodic basis. For some states, it’s every year, for others, it’s every couple of years, so be sure to check with your labor board for your local requirements.

Risks of Obtaining a Workers’ Comp Exemption

Financial Risks: While opting out of your state’s workers’ compensation requirements could save you money upfront, you run the risk of facing expensive out-of-pocket costs if you or an employee gets injured on the job.
Legal Risks: If you fail to cover an employee who is in fact required to have workers’ compensation coverage you will face steep fines and/or other legal penalties. The same consequences apply if you incorrectly claim an exemption.

If you are eligible for an exemption it’s important that you take the time to weigh your options. While we encourage you to play it safe and get some level of workers’ compensation for your business, it is a personal choice and each option has pros and cons.

Why You May Want Workers’ Comp, Even if You Are Exempt

High-Risk Professions: If you work in a high-risk industry such as construction, it’s likely worth it to obtain a workers’ compensation policy even if you’re not legally required. This is mainly because the risk of injury is so much higher in these professions in comparison to other ones.
Protect Your Assets: A workplace injury could result in a lawsuit costing hundreds of thousands of dollars without a workers’ compensation policy in place. In this dreadful situation, many business owners simply cannot afford to keep their company afloat, while also paying the settlement.
Employee Trust: Having a comprehensive workers’ compensation policy in place shows your employees that you truly care about their health and well-being. This helps to instill a sense of trust and loyalty among team members.

Learn More About Your Options at EZ.Insure

Workers’ compensation insurance is a crucial type of coverage that extends to employees by covering the costs associated with workplace accidents. While there are some benefits of opting out of your state’s requirements, it’s important to first weigh the pros and cons before making a decision.

To learn more about workers compensation coverage and other key business protections, visit our full resource library.

If you’re interested in taking the next step to cover your team, EZ.Insure also provides free quotes, and expert help from licensed insurance agents. To get started, simply fill out the form on the righthand side of the screen or call us at (855)-694-0047.

Independent Contractor Insurance: Protecting Your Business From Risk

Once your business is up and running, you might come to the realization that you can’t do it all, and you’ll need more help. Instead of hiring a full-time employee to handle some projects, you might opt to go for an independent contractor, vendor, or other third party. This is a great choice for small business owners, to save money and grow your business. When you go this route, it’s important to understand the downfalls if you don’t properly insure independent contractors you hire.

Insurance Options

If you decide to expand your workforce with independent contractors, you might have to upgrade your commercial insurance. If an independent contractor you hire makes a mistake without insurance, you could end up paying a lot of money.. That’s because the client can sue both you and the contractor for financial damages. With all that said, it is important to be protected in these instances. So you have two options:

Hire an insured contractor: If something goes wrong and you are sued, you can sue the contractor and recoup some of your losses. You can check if they have coverage by reviewing their certificate of liability insurance.
Add your independent contractor to your general liability policy as an additional insured: This means that they are covered by your insurance for the duration of the job. Make sure you have the right commercial insurance policies. This means a policy covering temporary staff and independent contractors for any work they perform for you.

Key Benefits of Independent Contractor Insurance

When working with independent contractors, having the appropriate insurance coverage in place can provide critical protection for your company. Here are some major advantages of ensuring your independent contractors are properly insured:

Financial Protection from Lawsuits. If an independent contractor has an accident or makes, getting them insured protects you from major financial losses. Without appropriate insurance, your company may be held liable for damages, legal fees, and compensation. Independent contractor insurance assures that you are not solely responsible for these charges.
Coverage for Errors and Omissions (E&O). Contractor errors and omissions insurance (E&O) protects against claims based on mistakes, negligence, or inability to deliver services as promised. This coverage protects your company against the financial consequences of contractor errors, protecting you from costly legal fights.
Liability Insurance for Third-Party Injuries and Property Damage. When independent contractors are covered under general liability insurance, it provides protection against third-party claims for bodily injuries and property damage. Whether an accident injures a client or damages their property, general liability insurance covers such instances, reducing your financial exposure. You can add a contractor to your policy as an “additional insured.” That way the policy covers accidents, property damage and physical injuries caused by the contractor
Professionalism and Peace of Mind. Contractors with insurance or who are covered by your policy ensure that both parties are protected, providing you with peace of mind. This not only protects your organization, but also strengthens your reputation as a responsible business owner.
Reduces Potential Gabs in Coverage. With an independent contractor add to your policy, you’ll reduce potential gaps in coverage. Doing so is crucial for safeguarding your company against unforeseen liabilities resulting from contractor errors or mishaps.

Professions Where Independent Contractor Insurance is Crucial

Independent contractor insurance is especially crucial for specialists in high-risk industries. These are jobs where liability, property damage, or errors can result in substantial financial losses. Some occupations where this insurance is particularly important include:

Construction Workers and Contractors. Construction projects involve numerous hazards, including property damage and on-site accidents, making liability coverage vital.
Freelance Designers and Developers. Errors in design or software development may result in financial losses for clients, prompting legal action.
Consultants and Business Advisors. Mistakes or oversights in professional advise can have financial or legal ramifications for clients, making professional liability insurance essential.
Real Estate Agents and Brokers. These specialists handle major financial transactions and may face legal ramifications if problems develop during negotiations or closings.
Photographers and Videographers. Misplaced or damaged equipment, missed photos, or liability during events can result in financial loss, hence insurance is essential for these positions.

Compare Quotes

Considering the cost of court fees, medical expenses, and repairs that might arise from negligence or accidents, having the appropriate insurance coverage is less expensive than risking the financial strain of a large liability claim. To save money, compare free quotes with an EZ agent. We’ll provide you with one agent to walk you through the process and find you the best policy available. To get free instant quotes, simply enter your zip code in the bar above, call us at 855-694-0047. No hassle, no obligation.

Do I Need Workers’ Compensation Insurance If I Have 1099 Contractors?

Workers’ compensation insurance is a key part of most companies’ risk management plans. Workers compensation coverage pays for lost wages and medical expenses when someone is injured on the jobsite.

Most states require all businesses to have workers’ compensation insurance of some sort. But does the same rule apply to 1099 workers?

1099 workers, also known as independent contractors, are usually put in their own separate category from typical W2 employees. With that said, it’s important to address the question of—do business owners who have 1099 employees need workers’ comp? Read on to find out!

Understanding Workers’ Compensation Insurance

Workers’ compensation coverage protects employers and employees when there is an injury or illness that takes place in the workplace. If an employee gets hurt on the job, this insurance covers their medical costs and pays them a portion of their wages. Additionally, workers’ comp is important for business owners because it protects against lawsuits brought on by employees.

In terms of legal requirements, it’s important to take a look at the guidelines for the specific state you’re operating out of. Generally speaking though, in most states workers’ compensation is a requirement for businesses of all sizes. Some other states allow businesses with a small number of employees to not obtain this coverage. For example, in Florida, companies with 4 or less employees in non-construction industries are exempt from workers compensation requirements.

W-2 vs. 1099 Employees

A W-2 employee, also referred to as a traditional employee, is a formally employed individual working for a company or organization in the United States. These employees work directly under the control of their employer and in turn, their employer withholds taxes from their wages. W-2 employees make up the majority of America’s workforce. As mentioned above, almost all employers have to provide this type of employee with worker’s compensation insurance.

On the other hand, 1099 workers actually aren’t considered employees. They are independent or self-employed contractors. Unlike W-2 workers, 1099 workers manage themselves and are responsible for their own taxes. Since they are freelancers and not employees, it’s often believed that workers’ compensation coverage is not required. While this is usually true, it’s not always that straightforward.

Do 1099 Contractors Need Workers Compensation Insurance?

The simple answer is no. There is no law stating that businesses must provide workers compensation insurance to 1099 workers. Since 1099 workers are self-employed, they’re generally expected to have their own insurance for things like healthcare and liability coverage. With all this said, in certain scenarios businesses are still held liable for injuries sustained by a 1099 contractor.

One situation that’s more common than you’d think is the misclassification of contractors. For example, if a company classifies someone as a 1099 contractor who isn’t, they will be held liable if there is a workers’ comp claim. This is not to mention the many other penalties that come along with employee misclassification. Another example where a business could be held liable is when the work agreement lacks a proper contract. In this case, since there isn’t a clear definition of the work agreement, the 1099 contractor may argue that they are effectively working as an employee. While these scenarios are usually few and far between, it’s important to always have work agreements in writing. Also be sure to look into your state’s and industry’s specific requirements.

Protecting Your Business and Contractors

So we learned that workers compensation insurance usually isn’t required for 1099 contractors. With that said, there are some things that you should do to avoid the risks associated these workers:

Make sure they have their own insurance coverage: As briefly mentioned, since 1099 workers are employed by themselves, they should have their own insurance. Liability coverage is the most important thing to look for.. Many business owners require their 1099 contractors to have liability coverage. If this is the case for your operation, be sure to let them know ahead of time.
Explore contractor-specific coverage options: For an extra layer of protection, you might consider exploring insurance plans that are designed specifically with 1099 contractors in mind. While the best practice is for these workers to have their own coverage, providing contractor-specialized coverage goes the extra mile in protecting yourself and the worker.
Have a clear definition of the relationship between yourself and your contractor(s): Before the rubber hits the road, it’s crucial to define the workers’ relationship to you. It’s a good idea to have this in writing in case anyone ever tries to deny your claim. Additionally, make sure that you state that the contractor is not eligible for the same benefits as a W-2 worker and that they must provide their own insurance coverage.

The Main Takeaway

Mistakes in the workplace can be costly, especially if you don’t have the proper insurance policy in place. While most businesses have to provide their employees with workers’ compensation coverage, we’ve learned that 1099 contractors are completely different. With that said, even if it’s not a requirement to provide these people with workers’ comp, it’s crucial to understand the risk and to take the proper precautions.

When it’s all said and done, issues involving 1099 contractors and claims are usually avoidable with clear communication, and accurate record keeping. Additionally, we suggest that you always require any 1099 worker to show proof of their own insurance coverage before starting a job. If you’re ever even a little bit unsure about coverage details, reach out to an insurance professional, like the experts we have at EZ.Insure.

If you’d like to learn more about workers compensation, or other essential business coverages, EZ.Insure is the place for you. Our simple platform lays out all the best local insurance options, making it EZ to choose the best coverage.

Our blog also has a ton of informational articles aimed at helping business owners and individuals stay protected. To learn more, just enter your ZIP code at the top of the page, or call us at 888-694-0047.

Tag: independent contractor insurance