Owners and Workers’ Compensation Coverage

Workers' Comp for Owners

Should Owners Be Included or Excluded?

Sole proprietors and partners are not covered under their own Workers’ Compensation policy. However, they may sign a special form to elect coverage. If they elect to be covered, the premium charge will be based on the rate for their classification multiplied by an assumed payroll of approximately $30,000.

On the other hand, corporate officers are automatically covered under their own policy and the premium is based on the rate for their classification multiplied by their actual payroll (subject to a minimum of approximately $13,000 and a maximum of approximately $99,000). However, corporate officers can sign a special form to elect to be excluded from coverage.

Why would a sole proprietor, partner, or corporate officer want to be excluded from coverage under his or her own Workers’ Compensation policy? Quite simply because it can save a lot of money. For example, if a sole proprietor is classified under Residential Carpentry at a rate of 14.5% and the rules state that his assumed payroll is $30,000, the premium cost just to cover the sole proprietor will be approximately $4,350.

Regardless of the savings, it is my opinion that an owner should never be excluded under his own policy unless he can come close to matching the lost benefits by:

  1. Being covered under a Health Insurance policy that provides coverage for on-the-job accidents. Don’t assume that all Health policies cover on-the-job accidents! Many don’t, especially if you are covered under your spouse’s work policy. Get it in writing!
  2. Purchasing a Disability Income policy to provide reimbursement for lost income that would result from an on-the-job injury where you can’t return to work. Be careful to purchase a high quality policy from a Disability Insurance professional as many policies offer extremely limited benefits.
  3. Purchasing a Life Insurance policy in the amount that is equal to the Workers’ Compensation death benefit.

Many general contractors are now requiring that their insured subs show evidence that the owners are covered under Workers’ Compensation. This requirement is in response to court cases that have allowed excluded owners to receive benefits under the general contractor’s Workers’ Compensation policy.

For more information, please see our Part 1 and Part 2 of Workers’ Compensation article.