There is always a lot of confusion regarding workers’ compensation insurance. I thought I would address some of the questions we get asked on a regular basis. I hope you find this to be a helpful, yet easy and informative read!
Who legally has to purchase workers’ compensation insurance? The simple answer to this question is most businesses with three or more employees, whether full or part time. Now, let’s make this simple answer a little more complicated! For one, your legal formation makes a difference in who is counted as an employee. If you are a sole proprietor, partnership, or any type of LLC, LLP, etc., the partners/members are not automatically counted as employees. If your firm is any form of a corporation (P.C., P.A., Inc., etc.), the corporate officers are counted as an employee of the firm. Independent contractors can sometime be considered employees as well. So if you utilize an independent contractor, it is best to make sure they have their own workers compensation coverage.
Are Sole Proprietors, Partners, Members of an LLC, and/or Corporate Officers covered by workers’ compensation insurance? If your legal formation is a sole proprietor, partnership, or any type of LLC, LLP, etc. the sole proprietor/partners/members are automatically excluded from workers’ compensation coverage, but can be included by endorsement. If you are any type of corporation, the corporate officers are automatically included, but can be excluded by endorsement. There are some unique rules for calculating the payroll based on your formation though. If you are a sole proprietor, partner or member and choose to be covered, your annual remuneration is calculated on a flat rate of $40,800. If you are a corporate officer and choose to remain covered, your annual remuneration is based on a minimum of $41,600 to a maximum of $83,200. These numbers are valid effective April 1, 2013 and typically change some each year.
If I have less than 3 employees, then why would I need to purchase workers’ compensation insurance? There are many good reasons why you might consider purchasing worker’s compensation even if you have just one employee. Just because you aren’t required to carry insurance, doesn’t mean that you are automatically not liable for an employee’s injury at work. Another great reason to purchase workers’ compensation coverage is the rates are very low for law firms – in fact it is one of the lowest class codes. Finally, wouldn’t your employee likely feel better knowing that the appropriate coverage is in place in the event they are injured on the job?
Are employees covered in all states? This is a complicated issue. To simplify it as much as possible, you can typically be covered in most other states on your workers’ compensation policy. That being said, if you operate in (or expect to at some point), have employees residing in or travel to other states, you need to let your work comp provider know to add those states to your policy. There are, however, 4 states that cannot be added – ND, OH, WA and WY. These states are monopolistic and coverage must be purchased in those states if needed.
Adam Pierce, AAI, is the Director of P&C Operations at Lawyers Insurance Agency. For more information, contact Adam at 800.662.8843 or firstname.lastname@example.org.