State-by-state workers’ compensation exemptions: Official guide
At the beginning of the 20th century, the proliferation of factories came with harsh working conditions. Injuries were common, and medical expenses could quickly overwhelm victims. States found it difficult to support their disabled citizens. Attempting to pay their costs, injured workers sued factory owners in lengthy, expensive trials.
Sounds good for everyone, right?
The solution for employers, employees, and the state was workers’ comp insurance programs. Between 1905 and World War II, most states developed their systems to handle compensation claims quickly through insurance plans, like those you‘ll find at Huckleberry.
What is workers’ compensation insurance?
Today, most states require employees carry workers’ compensation insurance that handles multiple benefits:
- Medical: To help the employee recover from work-related injuries.
- Death: To aid the family if an employee loses their life.
- Temporary Disability: To cover lost wages.
- Permanent Disability: If an employee is unable to recover.
- Job Displacement: To help cover the costs of retraining.
You can calculate premiums based on payroll and the types of workers you hire. Alongside small business insurance, workers’ compensation insurance coverage gives you peace of mind, and buying online means instant coverage.
Workers’ comp covers medical events. If your business could face lost wages due to fire, theft, or weather closures, you should also consider business interruption insurance.
When do I need workers’ comp in my state?
State requirements differ. Like New York and California, most states require employers to carry workers’ compensation insurance to employ even a single part-time or seasonal worker. You’ll likely need it as soon as you hire any worker, regardless of their role.
However, some states allow small businesses to avoid workers’ compensation requirements as they hire their first employees. Here are the states with the highest number of employees needed before workers’ compensation insurance is required:
|State||Number of Employees needed to trigger workers' compensation requirement|
|Alabama||5 or more employees|
|Missouri||5 or more employees|
|Tennessee||5 or more employees|
|Florida||4 or more employees|
|South Carolina||4 or more employees|
|Arkansas||3 or more employees|
|Georgia||3 or more employees|
|New Mexico||3 or more employees|
|North Carolina||3 or more employees|
State employee thresholds can also differ by industry. For example, in Florida, employers must provide coverage when employing a single construction worker.
There are also differences in what kinds of employers can apply for exemptions. In many states, large businesses can opt out of the program by being approved to self-insure.
Who qualifies for a workers’ comp exemption in my state?
Workers’ comp insurance rules differ from state to state. If you find yourself hiring employees, you’ll likely wonder if you’re required to carry the coverage or if you can file an exemption. Some common exemptions include:
- Self-employed individuals or independent contractors
- Industries covered by federal law, like railroad employees, maritime workers, and federal government employees
- Farm employees
- Unpaid interns or volunteers
- Domestic workers in private homes
- Specialized employment categories, like real estate agents, clergy members, performers, and taxi drivers
What does it mean to be exempt from workers’ compensation requirements?
Some employers can exclude themselves from workers’ compensation laws. An exemption does not provide workers’ compensation benefits. The exemption also means that employees can sue when they believe their employer is liable for their injuries.
Even an independent contractor covered by an exemption is at risk without an insurance policy. Suppose you are a plumber working in a client’s home when you hit your head on the sink, giving yourself a concussion. Without workers’ comp insurance, you could be on the hook for medical expenses and weeks of lost income.
Are directors and officers eligible for exemption in every state?
Different states set individual rules for officers, and specific ownership requirements vary from 1 to 50% to qualify for an exemption. For example, Massachusetts allows corporate officers to file an exemption if they own 25% of the company. In California, exemption laws apply to officers and directors if they fully own the company or are members of a limited liability company (LLC).
Currently, 27 states require specific petitions to exclude officers using a notice of election.
Let’s dive into some common state exemption rules.
California businesses must keep workers’ compensation insurance if they have a single employee (apart from roofers, sole proprietorships are exempt).
Filling out a worker’s comp exemption in California is easy—you can fill out an exemption from workers’ compensation form for contractors.
For officers and board members who own at least 10% of the company, you’ll have to execute a waiver to opt out of coverage, which must be signed and delivered to your insurance carrier within 15 days of its policy effective date.
The Florida workers comp exemption can include:
- Listed officers of non-construction industry corporations
- No more than 3 listed officers of a construction industry corporation
How long does it take to get a workers’ compensation exemption in Florida? Print a workers’ comp exemption form or fill it out online, and wait for 3 to 5 business days for processing with the Florida Division of Workers’ Compensation.
Michigan’s exemption process is not online, so you’ll have to obtain form WC-337 from the Department of Labor and Economic Activity. Use the exclusion form if you can exempt all your employees and you do not employ subcontractors. Examples are:
- Sole proprietorships with one or more employees, and all employees are parents, spouses, or children of the business owner
- Partnerships if all employees are partners
- Corporations If employees are all corporate officers who own 10% or more of the business
- LLC members if all employees are members who own 10% or more of the business
In New York, you’ll need a form CE-200 to exempt your employees if:
- You have no employees
- You’re an out-of-state entity with a contract, performing all work outside of New York
Processing is instant online when you apply using your NY.gov account.
Oklahoma has a notable exception for 5 or fewer family employees in a small, family-run business.
Sole proprietors can claim this exemption, while LLCs, corporations, and partnerships cannot (although their members and officers can file individual exemptions as owners with a 10% interest in the business).
You can file a workers comp exemption in Tennessee using the state’s online registry. Download the exemption form and confirm you meet one of the following exemption criteria:
- Officer of a corporation in the construction industry
- Member of an LLC with 20% or greater ownership
- Partner who owns at least 20% of the partnership
- Sole proprietor in the construction industry
- The exemption applicant owns a business where family members hold 95% of the company
Workers’ compensation is required in Tennessee. Tennessee requires workers comp for employers with 5 or more employees (mining and construction employers must provide the coverage for a single employee).
Texas is the only state where employers can exclude themselves from workers’ comp. According to Texas’ Division of Workers’ Compensation, 28% of Texas businesses choose not to carry workers’ compensation insurance.
Instead, file a DWC Form 005 and post notice in your workplace for employees. You’ll have to inform new hires that you do not provide workers’ compensation insurance and report any workplace injuries to the DWC.