Workers’ Comp exemption for corporate officers – is exemption ever safe?
Business owners today are trying to reduce their operating costs, and sometimes, insurance is one of the first places they go to look for savings. Agents and Brokers are being consulted daily on proper coverage, limits needed and ways to reduce costs. Recently, the Independent Insurance Agents and Brokers of America, aka the Big I, answered the often-asked question: Should Officers Exempt Themselves from Workers Comp Coverage?
The issue is not black and white, and answering the question can be complicated since each state applies different rules, definitions and statutes when it comes to exemption from workers’ compensation.
Many businesses see this payroll exemption as an opportunity to cut expenses and the total cost of their Workers’ Compensation Insurance. But as the Big I notes, doing so can have catastrophic consequences, and recommends reviewing the following points before making a decision:
- Health insurance policies often have employment exclusions, so it’s critical to review your policy with your medical insurer, and to find out how they will treat people who choose to opt out of W.C. benefits.
- In general, WC exclusion is not recommended, since the benefits could exceed those available under a health policy.
Form 153 – Affidavit of Exemption for Certain Corporate Officers or Directors states that “Any corporate officers who own at least 25% interest in the corporation may exercise their right to exempt themselves from the provisions of the Massachusetts Workers’ Compensation Act (M.G.L. ch. 152).” The bill goes on to state that employees are never allowed to do so, and must be covered by a valid workers’ compensation policy at all times.
Regardless of your state’s WC policy, the bottom line remains the same: Do your homework and make sure you have a clear understanding about your business’s policy coverages and exclusions. Take the time to develop a solid relationship with your Workers’ Compensation insurance carrier, as well your agent and broker. While eliminating your Officer’s Workers’ Compensation insurance might lower businesses expenses in the short-term, it could leave those individuals facing crippling costs in the future.
About the Author
David Bardelli is a Senior Vice President and the Casualty Practice Leader for WGA. David has extensive knowledge with casualty risks, including technology healthcare, business services and miscellaneous manufacturing groups of all sizes.