Do you need to get workers’ compensation now that you own a business? While many states require employers to carry it, there are exceptions. Find out who is exempt from workers’ compensation (also known as “workers’ comp”) insurance and why you might want to consider it anyway. But first, a quick refresher on what workers’ compensation is, exactly.

Workers’ comp is a type of business insurance that provides benefits to employees who suffer work-related injuries or illnesses. It’s often mandatory for employers and covers a number of costs, including immediate medical expenses, long-term medical care costs, lost wages and, in the worst-case scenarios, funerals and death benefits.

In short, workers’ comp provides a safety net that protects employees, their families, and businesses against certain unfortunate workplace incidents. That way, your business can avoid large payouts for medical (and sometimes legal) costs. But what if you’d like to forgo the safety net? Does your business really need it? Here’s all you need to know.

What types of workers are exempt from workers’ compensation?

When it comes to workers’ compensation, the rules change depending upon where your employees are located. Each state has their own requirements. It’s up to you as a business owner to understand your state’s workers’ compensation laws and ensure your business meets requirements before you can determine whether your employees are exempt.

Here are some factors that go into determining workers’ compensation exemptions in many states:

Businesses with less employees than required by statute

The vast majority of states require a business with at least one employee to carry workers’ comp insurance. Other states don’t require insurance until a business has a certain amount of employees. Those state are:

  • 3 or more employees – Arkansas, Georgia, New Mexico, North Carolina, Virginia
  • 4 or more employees – Florida, South Carolina
  • 5 or more employees – Alabama, Mississippi, Missouri, Tennessee

States not listed above, including the District of Columbia, require businesses to get coverage even if they have a single employee.

Understanding state employee headcount requirements is the first step. The next thing you need to know is which types of employees are exempt.

Certain job categories

Not every type of job counts toward the number of employees for certain states. Depending on where your business operates, there could be a host of job types that are exempt from mandatory workers’ comp coverage. These are the most common exempt categories you’ll see state-by-state:

  • Domestic workers: Individuals who perform work for a household such as cleaning, gardening, caring for children, and cooking.
  • Farm/agricultural laborers: Workers who maintain crops or tend to livestock.
  • Casual workers: Workers who work on an as-needed basis without a guarantee for ongoing employment.
  • Family members: Family members working for other family members.
  • Independent contractors: Self-employed individuals.
  • Federal employees: Individuals working for the federal government, which provides its own workers’ compensation coverage program.9
  • Railroad workers: Workers on railroads who are covered by Federal Employers’ Liability Act (FELA).
  • Longshoreman and harbor workers: Those employed to load and unload ships in a port that receive Longshore Act Benefits under federal law.
  • Business owners, executives, partners, managing members, and sole proprietors: Business owners and executives are often able to opt out of workers’ comp coverage.

The exemptions aren’t always black and white, however. In some states, they depend on factors like how many hours an employee works, how much they earn, how many workers an employer hires, and the exact type of work a person is performing. It’s important to read the fine print and ask a trusted expert, such as an experienced agent or broker, if you have any doubts. Also, if you or an employee is exempt but wants coverage, you can typically sign up even though it’s not mandatory.

Do self-employed people need workers’ comp?

Sole proprietors, independent contractors and self-employed individuals don’t typically have to purchase workers’ comp insurance. However, being uninsured can leave you open to liability in the aftermath of a work-related accident. Purchasing workers’ comp coverage even when it’s not mandated by state law could still be a smart move.

A broken limb or back injury could leave you with steep medical bills and interrupt your work for several months. Having workers’ comp insurance means that your medical expenses might be covered, along with a portion of your lost wages.

If you have someone working for you who’s exempt from mandatory coverage and they injure themselves on the job, they could still seek compensation via a lawsuit. Premium payments on a workers’ comp policy are likely a fraction of the amount you’d pay in defense, judgement and settlement fees.

What industries can be excluded from workers’ comp?

The types of businesses that could be exempt from workers’ comp would include those that fall into the private household, agriculture, real estate, taxi, professional sport, railroad, government, public service, and religious organization industries. Additionally, when freelancing is commonplace, such as in the arts, design, and entertainment industries, workers’ comp is more likely to be optional.

Considering the types of workers that are often exempt from workers’ comp requirements, examples of job categories that are more likely to be exempt include personal chefs, maids, seasonal workers, real estate agents and brokers, and even professional athletes and coaches.

What states have the most workers’ compensation exemptions?

Some states have more extensive exemption lists written into their laws than others. For example, Washington has a laundry list of workers’ comp exemptions that include occupations from domestic and maintenance workers to jockeys and entertainers. Other exemption-heavy states include Florida, Idaho, Iowa, Missouri, Montana, Nevada, Oklahoma, and Vermont.

For a full list of exemptions that apply to you, visit your state’s insurance or workers’ compensation board. It’s often named the department of labor, workforce development, or department of insurance.

Examples of state workers’ compensation exemptions

Every state has different exemptions when it comes to workers’ compensation requirements. Here are some examples of the differences between states:

In Colorado, real estate brokers and agents who work solely on commission, domestic workers (like nannies and au pairs), ski volunteers and casual farm and ranch laborers are exempt from workers’ compensation requirements.

In Pennsylvania, agricultural workers who work less than 30 days and earn less than $1,200 per year, some domestic workers, commission-only real estate brokers and casual workers are exempt only if all of the business’s employees also fit the exemption criteria.

In Kentucky, employers can get an exemption for their employees if they are members of a religious sect or other organization that opposes insurance.

In Arizona, domestic workers employed in a private home and casual employees who perform work that’s not a typical part of business operations are exempt from workers’ comp requirements.

How to apply for a workers’ compensation exemption

The process for filing for a workers’ compensation exemption is different in every state. In some states, you might not even have to file any paperwork—the state will automatically exempt anyone they consider to be a non-employee. In other states, you have to file an application for exemption.

If you have to file an application, you will typically need to provide several pieces of information, including:

  • Information about the employee in question
  • Details about your business
  • Your business license
  • Proof of business ownership
  • If applicable, your workers’ compensation insurance carrier

Once you complete the application, you must submit it and await approval. Upon approval, you will receive a certificate of election to be exempt from workers’ compensation.

The bottom line

If you’re a business owner with employees, chances are your state requires you to carry workers’ comp insurance. If you do happen to meet your state’s exemption criteria, securing workers’ comp coverage could still be a good move. Medical expenses and legal fees that result from workplace injuries can be devastating to a small business, and the price you pay today in premiums can save you immeasurable amounts of money in the future.