Most states require employers to purchase a workers’ compensation insurance policy to cover workers injured or made ill due to workplace activities and exposures.
However, the next common questions include, “What about owners and executives? Does the business need to cover leadership under workers comp?”
While owners and corporate officers can exclude themselves from coverage, there are potential drawbacks to opting out that need to be seriously considered before you make your decision.
In a general sense, here’s the breakdown:
- Executive officers of a corporation are usually included for coverage under each state’s workers’ compensation laws unless they file for an exclusion from the policy.
- Partners and sole proprietors are generally exempt from coverage but may elect coverage under the policy.
While excluding certain individuals from your worker's compensation policy can reduce premiums, it is not one of our preferred methods for reducing your workers’ compensation premiums.
Benefits of Workers’ Compensation Insurance
The benefits are the same for everyone covered under a commercial workers’ compensation policy, including officers.
Workers’ compensation coverage pays benefits to workers injured on the job. These benefits include medical care, a portion of lost wages, and permanent disability. It also provides death benefits to dependents of employees killed in a work-related accident.
A typical health insurance policy excludes work-related injuries unless a rider is attached to the policy that adds business coverage. Furthermore, health insurance does not cover disability in the same way that workers’ compensation insurance does.
Why Would Someone Opt Out of Workers’ Compensation Insurance?
Many officers and business owners make the following assumptions when opting out of workers’ compensation insurance:
- They assume that their medical insurance is enough to cover them in case of an injury incurred at the workplace.
- They assume they would never want to file a workers’ compensation claim against their own company, so they don’t see the need to pay premiums for a policy they won’t use.
Unfortunately, these assumptions and the myths they’re derived from can cause serious harm to a business.
Drawbacks of Leaders Opting Out
Even if a corporate officer spends most of his or her time at a desk, there is still a risk of injury. And if an injury occurs, the officer’s health insurance policy will likely have an exclusion for work-related injuries.
Without workers’ compensation insurance, the cost of treatment for those injuries would have to be paid for by the company or come out of the officer's pocket. Neither of these scenarios helps operate a profitable business.
Opting out of workers’ compensation insurance may save some money (depending on the leader’s job function, that savings could be quite minimal), but it also transfers risk to the employer and to the corporate officer(s) who chooses to opt-out of coverage.
Additional Premium Charges
If an officer rejects coverage, he or she will likely have to file a form with the state and/or the insurance provider before obtaining coverage for the rest of the company.
Without this notification, the insurance provider will assume that the officer is electing coverage and will charge him or her a premium based on standard payroll for industry and job function.
Additionally, the carrier will look to recoup the premium unpaid premium dollars at audit. This can lead to surprise audit bills the company was not expecting.
Be sure that if you opt-out of worker’s comp coverage, your insurance agent has provided you with the appropriate exclusion form.
Option to Self-insure
With self-insurance, a company can avoid paying workers’ compensation premiums by serving as its carrier.
The catch is that the company has to agree to post a bond or put money aside to pay for any claims that may occur. Each state has its self-insurance requirements.
For most businesses, self-insurance is not a realistic option from a profitability standpoint.
The Rub
While workers’ compensation insurance will remain forever an expense that business owners loath to pay, it is possible to minimize your worker’s comp expense through proper safety procedures, good processes, and the right programs in place.
This is different from how most insurance agencies talk to you about workers comp.
Rogue Risk is different.
We can help.
If your current insurance professional has never addressed issues such as total cost of risk or return-to-work programs with you, I would like to encourage you to contact us today.
- You can call or text us at 518.960.6600
- Click here to contact us via email.
I'm excited to introduce you to a new way of viewing your insurance program.
Thank you,
Ryan Hanley
