For workers compensation insurance, owners and officers of companies are treated differently from employees. In many cases, workers compensation for such individuals is elective. There are often specific rules, and those rules generally vary from state to state.
In Florida, laws were recently changed with respect to LLC members as of July 1st, 2013. All LLC members who elect to be excluded must file an exemption electronically with the State of Florida. The link to file an exemption for LLC members in Florida is https://apps.fldfs.com/bocexempt/. For members in a construction industry, there is a charge of $50 to be exempt. For members in a non-construction industry, there is no charge.
In each state, there are almost always specific rules with respect to the payroll value to use for included owners and officers. For sole proprietors and partners, there is often a set income value which must be used regardless of the actual income of the individual. Other times, and commonly for corporate officers, there is often a range of salary that can be used with defined minimum and maximum values varying by state.
Sometimes, such as in Florida, there are different ranges for construction industries and non-construction industries. Tennessee is another state with differing payroll ranges depending whether it is a construction business or not. In some states, corporate officers may be excluded regardless of company ownership. On the other hand, in some other states a certain percentage of ownership is required for a corporate officer to be excluded.
While there are many factors to consider in selecting a business entity type, the entity type can significantly impact this aspect of workers compensation insurance. For example, in Missouri, sole proprietors, partners in a partnership and LLC members may all elect to be excluded. However, corporate officers (if there are any non-owner employees) must be included in coverage if the company has a workers compensation policy in place. Thus, for certain business types such as heavy construction with higher workers comp rates, workers comp insurance may be significantly more expensive with one business entity type than another.
Another unique rule in Missouri is that 10% of the payroll value for owners or officers must be put into a clerical or sales classification which is generally much cheaper than many employee classification types. New Jersey is another state which permits LLC members to be excluded, but that requires corporate officers to be included in coverage.
How owner and officer inclusions and exclusions are documented varies a lot from state to state. In many cases, only the insurance carrier needs to be notified of the coverage election. In other states, there are specific forms which must be filed with a state agency documenting an owner or officer’s coverage election.
If you have questions about the inclusion or exclusion process for owners and officers, you should contact an insurance professional. Unfortunately, there are many agents who don’t specialize in workers compensation insurance so be wary of bad advice or misguided information. Work comp rules change frequently and not knowing your options may cost you significantly.