Do Owners need Workers’ Comp? Legal Must-Knows & 4 Pitfalls of Opting Out

The question people ask us most often is, “Does my business need workers comp?”

This often leads to the second-to-most frequently asked question: ”Do owners need workers comp?” 

The short answer is: 

Most business owners can legally exclude themselves from their company’s workers’ comp plan. 

Workers comp rules were originally created to protect business owners from claims made by their employees. So, it makes sense that they can opt out of their company’s workers comp coverage. 

However, just because you are not legally required to have workers’ comp coverage for yourself doesn’t mean it’s a smart idea not to have coverage. 

Deciding to opt out of coverage, like most other business decisions an owner has to make, comes with its own set of issues. 

Why do most owners choose to exclude themselves?

When dealing with workers’ comp, business owners often operate under certain assumptions. While these assumptions may seem valid on the surface, diving deeper can reveal potential pitfalls.

Assumption #1: “It’s too expensive.” 

Let’s face it. Most business owners who decide to opt out, do so to save money. 

Here’s a reality check: the cost of a workers’ comp policy is very small compared to the potential cost of a single injury. Plus, if you’re an admin doing clerical tasks, the cost of adding yourself to an existing policy is often minimal. 

Assumption #2: “My health insurance will cover me.” 

Probably not. Many business owners opt out of workers’ comp, relying on their medical insurance to pick up the tab. Unfortunately, they often find out that their plan excludes work-related injuries. 

Even if your plan does provide some coverage, it won’t be as comprehensive as workers’ comp. Typical health insurance, for instance, doesn’t cover lost wages, extensive medical bills, or death benefits. This is a far cry from what a workers’ comp policy typically covers. 

Additionally, it may have deductibles and coverage limits not present in a workers’ comp policy.

Assumption #3: “As an owner, my job is clerical by nature; I won’t get hurt.” 

While you may not be working on a construction site, no job is risk-free.  Things happen - from tripping over a wire to stress-related illnesses. If you’re not covered, a small mishap can leave you without the financial support you need.    

Assumption #4: “If it’s not legally required, it means I’ll never need it.”

Many businesses that hire outside contractors (like you!) require those contractors to show their certificate of insurance even if they are legally exempt because of their owner status.

From our files:

‍Here are two instances of businesses owners who legally did not need coverage but had people require them to have:

1. A commercial janitorial cleaning company discovered that a major contract they were about to land stipulated “NO EXEMPTIONS”. This meant that every individual, including the owner, had to be covered under workers’ comp. The business owner had to scramble to revoke his state exemption and amend the policy.

2. A carpet cleaner was stopped at the entrance of an upscale apartment building due to lack of a certificate of workers’ comp coverage. Even though he was the owner of the business and had exempted himself legally, the policy of the building was ‘No certificate, no entrance’. He lost a day of work because they didn’t let him in.

What if I decide to remain with the coverage? 

If you choose to remain under your company's workers' comp coverage, it’s important to make sure that you’re classified correctly.

If you're only handling executive tasks like scheduling, hiring, or firing, you fall under Code 8810. That's a low-rate, clerical category. However, if you're also out in the field installing tiles, then you're classified as a tile installer. 

This distinction makes a huge difference in your rates. 

It’s your job description - not your title - that determines how you’re classified. 

I’ve decided to opt out. Now what? 

If you decide to exclude yourself from coverage, here’s what to keep in mind: 

Owners are automatically included unless they specifically opt out 

Realize that as an owner, you are automatically included in your company’s policy unless you take active steps to opt out. Specifically, you need to fill out your state’s exemption form to officially opt out. Otherwise, you are getting coverage and will be billed your carrier’s “minimum premium” at audit. 
‍

Kickstand Tip: 

‍Different states have different requirements for exemptions. Pennsylvania, for example, requires two separate forms to ensure your exemption. In contrast, Georgia requires just a single form. 

In some states, exemptions expire and need to be renewed

Exemptions expire and need to be renewed on time to avoid being billed for coverage. Expiration dates don’t necessarily align with the end of your policy term. Make sure you are checking all the boxes in your state and keeping your exemption updated and active. 

Ghost Policy: Owners’ Exemption for Self-Employed Business Owners

Sometimes, sole proprietors or single-member LLCs, although not legally required to have coverage, may still need a workers' comp policy. This might be because they are subcontractors needing a certificate of insurance for a job, or because certain states require it for every business.

In these cases, they can opt for a 'ghost policy.' A ghost policy is a minimum premium workers’ comp policy tailored for a one-person business. However, since the company owner is excluded from the policy, it doesn’t actually cover anyone. While it doesn’t provide active coverage, it can satisfy client or legal requirements.

Need help? Reach out! 

At Kickstand Insurance, we review all quotes to make sure you are getting a policy with the right coverage for you and your employees.

We’ll tell you which forms need to be completed for your exemption and help you fill them out. We can assist with workers’ compensation exemption letters, and we’ll also help you with workers’ comp exemption renewal needs. 

Get started by filling out an instant insurance quote so we have your information handy or call 866-338-6388 and we’ll be happy to help you navigate your exemptions.