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Each state has their own requirements for who is required to carry workers compensation and who it is optional for. Most states require that if you have 3 or more employees then you are required to carry Workers Compensation. Furthermore, the states count any Directors and Officers of corporations, whether compensated or not, as employees. For example, if you are incorporated and you and your spouse are listed as President and Vice-President of the corporation and then you have 1 other employee, part-time or full time it doesn’t matter, then the state deems you to have 3 employees and therefore are required to carry Workers Compensation. Some states allow for a way to remove certain officers from the employee count, however, that involves a delicate process and if not done correctly could end up costing you fines and penalties for not being compliant with the individual state law. Some states can fine you up to $50,000 just for not carrying Workers Compensation. Not to mention if an employee were injured on the job and you were found to be required to have Workers Compensation but didn’t, the state would hold you liable for the resulting loss.
Then other states take it even further and actually count the employees of your sub contractors as your employees. It doesn’t matter if your sub contractors all have Workers Compensation or not, their employees are still used in determining the number of employees you have. To illustrate, if you are a sole proprietor with no employees but you use a sub contractor that has 4 employees, whether that sub contractor has Workers Compensation or not, you are considered to have 4 employees yourself and are required by some states to now carry Workers Compensation. Once again, if you are considered to not be compliant with the laws of your state you could be subject to fines, penalties and any resulting losses.
Don’t try and navigate the complex Workers Compensation rules by yourself. Contact one of our Commercial Lines Coverage Specialists today for a free consultation to see if you are required to carry Workers Compensation.