Workers' comp waiver: Do you qualify?

Workers’ compensation insurance protects businesses from substantial costs if an employee suffers from a work-related injury or illness, including medical bills, disability benefits, and legal fees.

Companies that have employees or work in certain industries are typically required to have this coverage. However, depending on the size and location of your business, you could get an exemption by signing a workers’ comp waiver. This document confirms your decision not to secure coverage, leaving you on the hook for any medical bills if you or an employee gets hurt on the job.

Here are a few instances when waivers are offered:

When clients hire 1099 contractors, they usually require the contractors to sign a contract that includes language requiring the contractor to carry workers’ compensation insurance. This standard legal protection helps clients manage costs—instead of paying for the coverage themselves, they require the contractor to pay for it.

However, if you’re the sole person on the job or you don’t have employees, the contract might allow you to sign a workers’ comp waiver. This document protects the client in the event of a lawsuit related to a workplace injury or illness.

To pursue this option, independent contractors should be comfortable self-insuring, as they’ll be responsible for medical bills if they’re injured on the job.

Each state runs its own workers’ compensation system, with specific laws that are handled by its Department of Labor. Typically, if a state allows workers’ comp waivers, you must file an application form with its Division of Workers' Compensation (DWC).

Filing for exempt status may be an option for your business if:

• You don’t have any employees
• You have employees, but you choose not to cover yourself with the policy

States will most often allow individuals to exclude themselves from workers' compensation coverage if they’re an independent contractor, have a sole proprietorship, or own a single-member limited liability company (LLC).

If you own an LLC with employees and you want to waive coverage for yourself, you’ll have to look at the workers’ compensation laws in your state. For example, Michigan allows LLC owners to exclude themselves from insurance coverage if they own at least 10% of the company and file Form WC-337, Notice of Exclusion with the state.

Even if you can waive workers’ comp, it’s still a good idea to have protection because your health insurance typically doesn't cover the costs of a work-related injury. Without workers’ comp coverage, you’ll pay those costs out of pocket.

Workers’ compensation is a complex topic, so it’s important to do some research before you decide on your coverage. An insurance agent can help you understand the possible ramifications of foregoing coverage and whether the financial savings are worth the increased risk.

If you don’t have an agent, feel free to contact us for more insight into your company’s workers’ comp insurance requirements.

While workers’ comp coverage offers crucial protection for you and your employees, it does come with added expense. The good news is, there are steps you can take to find affordable workers’ comp insurance, maintain a clean claims record, and lower your insurance premiums.

These steps include:

Most insurance carriers will offer a discount when you pay the full yearly amount instead of paying the premium on a month-to-month basis. Paying everything at once will not only save you money, but it’ll simplify year-end premium audits, ensuring you pay closer to your actual payroll and avoid large adjustments.

Eliminating workplace hazards and implementing safety precautions can reduce the chance of workers’ comp claims, which can lower your liability insurance costs.

Here are some risk management strategies to protect your workers and cut down on claims:

• Supply employees with gloves, goggles, and other protective gear
• Train employees in safe-lifting techniques
• Have a clear safety protocol for injuries and emergencies
• Document all business interactions with clients and customers
• Enforce safe-driving policies, such as no calling or texting while driving for work

Insurance companies use workers’ comp class codes to assess your business’s risk level and determine your rates. It’s important to accurately classify your employees, independent contractors, and subcontractors to avoid:

• Overpaying for coverage
• Owing back premiums
• Having a lapse in coverage
• Getting your insurance policy cancelled

It’s illegal to intentionally misclassify employees, such as classifying full-time workers as independent contractors to save money on insurance. Doing so can result in serious fines, misdemeanor or felony charges, and even jail time.

Here are a few options that can help you save money on workers’ comp: 

Pay-as-you-go workers’ compensation

Having a pay-as-you-go workers' comp payment plan can improve your cash flow and increase payment accuracy because it:

• Matches premiums to your real-time payroll vs. annual estimates
• Updates your premium every month to reflect any staffing changes
• Lowers your initial down payment, typically to 10%
• Reduces end-of-year premium adjustments

Businesses that have a variable number of employees throughout the year or can’t afford a hefty insurance premium might want to consider this type of payment structure.

Minimum premium workers' compensation

If your business has a small number of employees and few risks, you might be eligible for a minimum premium policy. With this type of workers’ comp, you get the lowest possible premium that an insurer will offer, and that rate will remain flat even if you hire one or two employees.

Workers’ compensation ghost policy

A workers' comp ghost policy is a cost-effective option created for self-employed business owners or independent contractors with no employees who need to show proof of workers’ comp coverage to win a new contract or satisfy legal requirements.

Keep in mind, this type of policy doesn’t provide any real disability or healthcare benefits. It only provides proof of workers' comp coverage, meaning any job-related injury expenses will come out of your pocket.

Ghost policies are legal in some states and banned in others, so it’s important to check with your state workers’ compensation laws to see if it’s an option where you operate.

TechInsurance helps small business owners compare business insurance quotes with one easy online application. Start an application today to find the right policy at the most affordable price for your business.

Our licensed insurance agents are here to answer any questions you may have regarding workers’ compensation benefits or other types of insurance. Once you’ve purchased a policy, you’ll typically get your certificate of insurance (COI) within 24 hours.