Workers Compensation Exemption

An independent contractor or business owner who excludes themselves from workers' compensation is essentially waiving benefits they may receive incase of a work related injury.

Most states require businesses with employees to carry workers’ compensation insurance. But independent contractors and business owners may be able to apply for a workers’ compensation exemption. An exemption waives workers compensation benefits, and in case they get hurt or sick from the job they will not get any insurance benefits.

What You Need to Know

What is a Workers’ Compensation Exemption? Exempting Independent Contractors Exempting Business Owners Risks Applying for an Exemption Tennessee Application What You’ll Need to Register

What is a Workers’ Compensation Exemption?

Being workers’ comp exempt means an employee doesn’t have coverage for workers’ compensation insurance. If a worker has an exemption, they won’t get benefits to help them recover from a work-related injury or illness. So, they or their employer will have to pay out of pocket for:

Medical bills
Ongoing care costs
Treatment expenses

The exempt employee also won’t receive lost wage replacements if they miss work because of an injury or illness caused by their job.

Exempting Independent Contractors

Each state has different regulations that exempt certain types of workers from being covered by workers' compensation insurance. The most common type of excluded worker is an independent contractor. Independent contractors are not employees; an independent contractor is a self-employed individual. When independent contractors and sole proprietors choose to exclude themselves from worker compensation, they waive insurance benefits. Many construction jobs are of high risk, and careful consideration should be given if planning to get a workers’ compensation exemption in this industry.

Exempting Business Owners

Officers of a corporation, members of an LLC, partners in a partnership, and sole proprietors who do contract work for a business can attempt to exempt themselves from being covered by workers' compensation insurance in their state. Often business owners perform managerial or administrative job duties and do not expose themselves to risks at work. A business owner who chooses to exclude themselves from workers’ compensation is waiving all insurance benefits. Many choose to exclude themselves to save money on their workers compensation insurance premiums.

Risks

While getting a workers’ compensation exemption can help you save on insurance costs, there are risks.

For example, let’s say you’re a construction worker and your state exempt you from carrying workers’ compensation. While working one day, you fall from a ladder at a height of 3 story building and broke a leg, an arm, and severely hurt other parts of your body. Your health insurance policy will not cover your medical bills because your injury happened at work. And because you applied for an exemption of workers compensation insurance, you will not receive benefits to help you recover. No insurance will pay for your medical treatment costs and you will be required to pay out of pocket, which can get expensive quickly.

Applying for an Exemption

The requirements for filing a workers' compensation exemption differ widely from state to state. Some states automatically exempt non-employees, while other states include them and require an exemption application.

Tennessee Application

Tennessee’ application, for example, begins by asking you to describe the Qualification Type, such as: Member of a LLC, Officer of a Corporation, Sole Proprietor, etc. All applicants must have a federal employer identification number (EIN) and a copy of the IRS letter with EIN must be submitted with the application. Some Qualification Types may also require an Entity Control and Business Name, so it’s important to have all the registration documents when applying. Additionally, if the entity has a contractor and/or a business license, this information will be needed.

What You’ll Need to Register

Business Entity Name and Secretary of State Control Number
Business FEIN
147 (C) FEIN Confirmation letter from the IRS
State Contractor's License Information
Business License Information
Credit or Debit card (Additional fees may include a service fee)

Need help? We can help you file an initial or renewal registration.

TIP:

Applying for the first time. Be sure to have the IRS EIN letter. This is the original letter the IRS issued when you applied for the business EIN.

Renewing exemption. You can renew your workers compensation exemption days in advance before it expires. You should renew before the expiration date to avoid insurance premiums from going up.