Can owners and officers exclude themselves from workers' comp?

Often, yes. Most states let some owners, partners, LLC members or corporate officers choose to be excluded from workers' compensation, but each state decides who qualifies, what paperwork is required and whether construction is treated differently. An excluded owner pays no premium on their pay, and also has no comp coverage if hurt on the job.

Three different questions

People mix these up, so separate them first.

1. Must the person be covered? Some state statutes define owners as employees unless they opt out. Others define them as non-employees unless they opt in.
2. How is the person excluded? By a written waiver given to the insurer, by a notice filed with the state, or by an endorsement on the policy.
3. How is their pay counted for premium if they stay covered? NCCI's Basic Manual rules on executive officers, partners and sole proprietors set minimum and maximum payroll amounts that apply when an owner is included. The amounts are set state by state and change over time, so ask your carrier for the current figures. See how workers' comp premiums are calculated.

What you give up

An excluded owner is not an employee for workers' comp purposes. If the owner falls from a ladder, the comp policy pays nothing: no medical bills, wage replacement or disability benefits. The owner's own health insurance and disability coverage become the safety net, and a personal injury claim is possible only against someone else at fault. For business owners with a few employees working next to them, that is a real trade-off against a premium saving.

Three other things follow:

• Contract requirements. General contractors, municipalities and large customers often require proof of comp coverage and may not accept an exclusion. Some require that officers be included. Read the contract. See managing subcontractor insurance and certificates.
• Premium audits. Auditors verify that the excluded person has a valid waiver or filed exemption on record, and that you paid them as an owner, not as a regular employee. See premium audits: how they work and how to prepare.
• Losing the waiver. Signing a waiver does not make the rest of the business's workers exempt, and it can be withdrawn in writing in some states.

How states differ: four examples

These examples show how wide the variation is. They are not a substitute for your state's agency or statute, which you should check through workers' comp and benefits requirements by state.

California, per California rules and carrier forms, requires a separate waiver for each person ("one individual per form"), and company representatives may not sign for the individual. Under the Florida statute (s. 440.02), a sole proprietor or partner outside construction is not an employee unless they elect coverage, while a sole proprietor or partner in construction is included as an employee. That construction rule is typical: a number of states treat construction owners more strictly than other trades. See Florida.

The four monopolistic states handle owners through their statutes. North Dakota treats corporate officers, LLC managers, sole proprietors and partners as employers, not employees, and lets them buy elective WSI coverage (North Dakota). Ohio puts sole proprietors, partners and one-person corporations with no employees outside the definition of employee, but other corporate officers are employees (Ohio). Washington excludes sole proprietors, partners and qualifying officers and LLC members unless they elect coverage (Washington). Wyoming owners are not employees unless the business elects coverage in writing, which then lasts at least eight calendar quarters (Wyoming). In South Dakota an executive officer may reject coverage by written notice to the corporation, and working owners can buy coverage on the business's policy (South Dakota).

New York's CE-200 is often misunderstood. The Workers' Compensation Board describes it as a certificate to prove to a government entity that you are not required to carry comp. It is not a waiver of benefits or obligations.

Example: a hypothetical electrician

Say a two-person electrical shop in a state that allows exclusion is owned by the electrician, who takes pay as a corporate officer, and employs one apprentice. The apprentice must be covered. The owner can sign the state's waiver, and the policy is rated on the apprentice's payroll alone. The premium is lower. If the owner is hurt, there is no comp claim. If the owner stays covered, the carrier rates the owner at the state's executive-officer payroll rule and the owner is protected. Say the shop wins a job for a general contractor whose subcontract requires comp for all principals. Then the waiver costs the owner the job, and many owners reverse the waiver for that reason. The numbers here are hypothetical, and a broker should quote both options.

How to decide

1. Check your state's rule. Find out whether owners are included by default and whether an election is permitted. workers' comp requirements by state: who must carry it is a starting point.
2. Compare the premium. Ask for quotes with and without the owner. The premium saved may be small compared with the risk.
3. Check other coverage. Does the owner have group or individual disability insurance, and does their health plan pay for a work injury? Many health plans exclude injuries covered by workers' comp, but exclusion leaves the plan with the bill.
4. Review contracts. Look at prime contracts, licensing rules (some states require comp to hold a contractor license even without employees) and lender covenants.
5. File the paperwork correctly and on time. An exclusion usually does not take effect until the insurer accepts it or the state processes the filing. Do not assume a signed form is enough until you see the endorsement.
6. Keep it updated. When ownership changes, an officer joins, or you add employees, revisit the exclusion. See workers' comp for small businesses.

Common mistakes

• Excluding a person who does not meet the ownership test. In states with a percentage threshold, a manager or a minority shareholder may not qualify.
• Assuming a family member who works in the business is automatically excluded. Many states treat family employees as employees.
• Letting the waiver lapse at renewal because a new policy needs a new form.
• Treating an exclusion as an independent-contractor decision for the owner's own labor. See independent contractors and workers' comp: the misclassification risk.

Key takeaways

• Many states let owners, partners, LLC members and officers exclude themselves from comp, but the eligibility test, form and construction rules differ by state.
• An excluded owner has no comp benefits if injured, so check disability and health coverage and weigh the premium saving.
• California uses a signed waiver with an ownership threshold; Florida uses a state filing, with a cap of three officers in construction; New York's CE-200 is not a waiver.
• Contracts and licensing rules can force you to include owners, so read them before waiving coverage.
• Ask your carrier for quotes with and without the owner, and confirm the exclusion appears as an endorsement on the policy.