Workers Compensation for Business Owners: Do They Need It?

So far in this series, we’ve discussed an overview of what the Workers Compensation policy is, then went into some detail about how the policy works in regard to the Workers Compensation Audit, and answered how to go about getting insurance for your subcontractors.

Today, we’re going to go into a slightly different direction and talk about the best ways to protect the owners of the business from injury and illness. 

Does a Business Owner Need Workers Compensation?

The owner of a business can be covered under workers compensation insurance, although in many cases they don’t have to be.  It’s sometimes worth having an owner included for coverage; however, the decision shouldn’t be made without considering your other options. 

Workers Compensation Laws & Requirements in Pennsylvania and New Jersey

Different states have different rules about whether or not the owners of a business can be included or excluded from Workers Comp coverage.  Here’s a quick guide to the two states we typically work with.

Pennsylvania:

  • Owners of a Sole Proprietorship, Partnership or LLC are automatically EXCLUDED but can elect to include themselves for coverage.
  • Owners and Officers of a Corporation are automatically INCLUDED but can elect to be excluded from coverage.

New Jersey:

  • Owners of a Sole Proprietorship, Partnership or LLC must decide to elect on or off of coverage.  There is no default inclusion or exclusion.  All owners or partners must elect the same option – either everyone is included or everyone is excluded.
  • Owners and Officers of a Corporation are automatically INCLUDED and CANNOT elect to be excluded. 

Is It Worth Getting Coverage for Business Owners?

As with most things in insurance and managing your risk, the answer comes down to “it depends,” and then we ask you questions. 

There are a couple of factors to consider.

  1. What are the job responsibilities of the owner and what Workers Comp classification might they qualify for?
  2. What payroll, if any, does the owner receive? 
    1. Owners are subject to both minimum and maximum chargeable payroll in determining the premium for an owner.  These amounts vary by State and these amounts can change annually.
  3. Remembering that Workers Comp provides coverage for medical expenses and lost income, what other coverage outside of Workers Comp do the owners have? 
    1. Do the owners have Health insurance?
    2. Do the owners have Disability insurance?

In conversations with my clients, I’ve found that most people have Health Insurance, but Disability Insurance coverage is commonly missing. 

So, should an owner have coverage under the Workers Comp?  If they have health and disability insurance, there’s really no reason to have the extra expense. 

“For injuries sustained outside of work, or for non-occupation related illness, there is no coverage under Workers Compensation, but there is under Disability Insurance.”

An individual Disability Income policy will almost always provide better coverage than Workers Comp.  However, if you don’t have Health and/or Disability, I would recommend having a conversation about being included on Workers Comp as well as getting separate Disability insurance. 

Looking for More Information on Workers Compensation?

This post is part of a series aimed at providing more information about Workers Compensation.  Any additional information we’ve published will be linked here as they get posted: