Most states exempt certain individuals, or groups from required Workers Comp benefits. Examples include sole proprietors, partners, corporate officers, and independent contractors.
However, attempted abuse of the system to reduce premiums is causing several states to reconsider these types of exemptions.
Auditors and worksite inspectors tell tales of construction firms that designate everyone as a corporate officer. Or, when visiting what appears to be a company with 20 employees, the auditor is assured that it’s only a sole proprietor who’s outsourcing his work to 20 independent contractors. To prove the point, each “contractor” is required to purchase his own Workers Compensation policy, which, of course, is useless because each is exempt from the law as a sole proprietor.
These arrangements create two major problems. First, if an exempted party suffers an injury, no benefits will be available. At this point, the entire house of cards might collapse in lawsuits and accusations. Second, Workers Comp premiums and loss costs for all insureds become distorted as large numbers of employees whose premiums should be helping to cover claims stay out of the system by exploiting these exemptions. As a result, several states are moving, or have already moved, to close these loopholes by modifying or eliminating the allowable exemptions.
If you’re using any of these types of exemptions to avoid paying Workers Comp premiums on certain employees, now would be a good time to revisit the purpose behind those choices. Let’s sit down together and discuss your requirements, goals, and options.