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Workers’ Compensation Insurance Part I – Who is Covered?


The subject of workers’ compensation is an expansive topic that we will tackle in a series of blogs. Part I will cover who is covered, and future articles will tackle wages, audits, and more.

Workers’ compensation insurance is a requirement for just about every business operating in the U.S. There are few exceptions, which are determined at the state level; for example, Florida, where the requirement is four or more employees, including business owners who are corporate officers or Limited Liability Company (LLC) members, in a non-construction industry business. For a construction industry business operating in Florida, you only need one employee to require coverage. Every state is different, so consult with your agent or state’s Division of Workers’ Compensation for details. Here is a resource to quickly find the division in every state:

Who is covered and counted as an employee may be just as tricky. In this article, we will cover officers, independent contractors (1099s), interns, volunteers and other people who may perform work for free.

Officers are typically included by default, but some states will allow a bona fide officer to be excluded. The corporate meeting minutes, charter or bylaws will identify the executive officers so businesses, like a bank, may not be able to exclude every employee that is identified as a “vice president.” Sometimes it seems like every employee I run into at a bank has the latter title. The exemption is not an automatic exclusion, and prerequisites may need to occur for the exclusion to take place, such as filing a form with the state Division of Workers’ Compensation. In Florida, this can be performed online in a matter of minutes at Officers may receive disproportionately higher salaries, or even very small salaries, that are not representative of their exposure to loss, so there is a minimum and maximum set per included person. Here is a guide that shows the wage minimum and maximum for officers, owners, partners, and members for each state.

Independent contractors are not considered employees, but it is quite possible that they are considered “workers” for workers’ compensation coverage purposes. This is usually a situation discovered at time of audit and comes at a surprise to the business owner. Most state workers’ compensation laws provide that a contractor is responsible for workers’ compensation benefits to employees of uninsured subcontractors. Evidence that the subcontractor either had workers’ compensation coverage for the entire time they performed work for the insured, or that they were exempt from coverage, is required. Should you fail to provide evidence of coverage or exemption will result in their inclusion in coverage.

Generally, paid interns are considered to be employees and are covered by workers’ compensation, but if the intern is unpaid, it can be harder to determine and will vary by state. We may be able to sum this up and say that an intern may be covered if their duties and schedule are directly controlled by the business. Minnesota law, for example, specifically states that for purposes of workers’ compensation, student teachers are considered employees of the schools in which they are working, where as South Dakota law stipulates that vocational program students working off school premises are considered school employees unless the offsite organization, where they are working, pays them or otherwise elects to voluntarily cover them. Interns are typically characterized as advanced students or recent graduates who are learning a professional field and should not be confused with volunteers, which we will cover next.

While unpaid interns may sometimes be considered employees, volunteers typically are not. Volunteers are not paid any wage and are excluded by default, but coverage may be obtained by adding voluntary compensation coverage to the policy, should you want them covered. The premium is based on the amount normally received by employees doing the same or similar work. The rule also states that volunteer workers are assigned to the classifications that would be applicable to paid employees of the insured doing the same or similar work.

Intern or volunteer? An internship is something that is for the purpose of developing an individual’s skills while volunteering is for the purpose of an individual helping out. An interesting scenario is that it is possible that two different people performing the exact same work could be classified as either, all based on the intent of the person performing the work. For example, a teaching program can be viewed as an internship by one looking to develop their teaching skills or as volunteering by one who is just looking to help out. Try explaining that to an auditor.

This last consideration may not occur too often, but worth a mention, and that is coverage for workers who may have performed work for free. I suppose we can call this imputed income, as that is what it is. Who would work for free, you may ask? Probably family. Let’s say you have a family member who ‘helped out’ at the business and was not paid any wage. Over the years, I probably had a parent, spouse, and even a child, perform some work. Granted, in my case, the work was very minimal; probably an hour or two over the course of a year. But, how about that ‘retired’ parent that comes in every day to your business and works for hours each and every day? They are happy to do it, as it keeps them busy and they are helping their ‘child,’ not to mention spending time with them. That sounds like a win-win-win, but if a workers’ compensation auditor ever found out about that, it would definitely to cost you. The imputed part is that the auditor will estimate how much someone would normally be paid in that position, the hours worked over the course of the policy year and the classification that would be applicable to a paid employee performing the same or similar work. In short, it could amount to a significant and unexpected amount of premium due.

Hopefully this article provided some insight into who’s covered. Keep a look out for Part II, which will cover the inclusions and exclusions of wages paid.

While I make every attempt to ensure the accuracy and reliability of the information provided in this article, the information is provided “as-is” without warranty of any kind. PayMaster, Inc and Romeo Chicco do not accept any responsibility or liability for the accuracy, content, completeness, legality, or reliability of the information contained. Consult with your CPA, Attorney, HR Professional, or Workers’ Compensation Insurance Agent to ensure compliance. If PayMaster, Inc. handles reporting of your premium under a ‘pay as you go’ with your carrier, it remains your responsibility to properly classify employees, verify rates, and ensure the proper inclusion/exclusion of all remuneration paid to wards the premium calculation.

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