Worker's Compensation Insurance Opt-Out

By Laura Duggan     Add your comments

There are some interesting options for dealing with owners and shareholders, where you can actually opt out of the insurance, which has an impact on your expenses.

Basic Workers Compensation Insurance Facts

Workers Compensation Insurance is a state, not federal, social service mandate. Each state has its own requirements. The purpose is to provide no-fault reimbursement for workers who are injured on the job. The insurance provides payment of medical expenses and lost wages to employees and offers liability protection for the employer. Some states make it purely voluntary, such as Texas. Other states have strict requirements. Some states offer state-run insurance funds and others support private insurers. Many states use private companies to administer the workers compensation system.

For more information, visit the California website

Opting Out

Many states allow owners/shareholders to opt out of the insurance. The reason this is desirable is because the amount of insurance premiums is partially based on salaries, and often owners and other executives have a higher salary base.

For example, the California Workers Comp guide states:

“Executive officers and directors of corporations must be included in Workers Compensation coverage, unless the corporation is fully owned by the directors and officers.” The Maine Insurance guide states:

“A bona fide owner of at least 20 percent of the outstanding voting stock of a corporation may file a written waiver with the Workers’ Compensation Board to waive all the benefits and privileges provided under Workers’ Compensation laws, if the waiver is not a pre-requisite condition to employment. Without an approved waiver, payroll of the owner-which may be an executive officer-must be included in premium calculation.”

How to Opt Out

You need to check with your state requirements to opt-out of insurance. In some states, such as California, Missouri, and Illinois, all interactions, including opting out, are handled directly through the insurance company. Other states, such as Maine and Vermont, provide the waiver form on their own websites and are involved in approving opt-outs.

Examples of Coverage Requirements for Different Businesses (from Maine Website )

Sole Proprietors

Sole proprietors are not required to cover themselves but may opt into coverage by purchasing a policy.


Partners are not required to cover themselves but may opt into coverage by purchasing a policy.


Owners of 20% or more of the outstanding voting stock of a corporation may opt out of coverage by filing a waiver form with the Workers’ Compensation Board. This waiver must be approved or coverage is required.

Limited Liability Companies (LLC)

Treated Like a Partnership

Professional Associations (PA)

Treated Like a Corporation

Professional Corporations (PC)

Treated Like a Corporation

Propria Persona (PP)

Treated Like a Sole Proprietor

Service Corporations (SC)

Treated Like a Corporation

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