Sole proprietors and partners are not covered under their own Workers’ Compensation policy; however, they may sign a special form to elect coverage. If they elect to be covered, the premium charge will be based on the rate for their classification times an assumed payroll of approximately $30,000.
On the other hand, corporate officers are automatically covered under their own policy and the premium is based on the rate for their classification times their actual payroll (subject to a minimum of approximately $13,000 and a maximum of approximately $99,000). However, corporate officers can sign a special form to elect to be excluded from coverage.
Why would a sole proprietor, partner, or corporate officer want to be excluded from coverage under his or her own Workers’ Compensation policy? Quite simply because it can save a lot of money. For example, if a sole proprietor is classified under Residential Carpentry at a rate of 14.5% and the rules state that his assumed payroll is $30,000, the premium cost just to cover the sole proprietor will be approximately $4,350.
Regardless of the savings, it is my opinion that an owner should never be excluded under his own policy unless he can come close to matching the lost benefits by:
Many general contractors are now requiring that their insured subs show evidence that the owners are covered under Workers’ Compensation. This requirement is in response to court cases that have allowed excluded owners to receive benefits under the general contractor’s Workers’ Compensation policy.