Who is Required to Buy Workers’ Compensation Insurance?

The North Carolina Workers’ Compensation Act requires that all businesses which have three or more employees obtain Workers’ Compensation insurance.  It does not matter if these employees are full time, part time, seasonal, or family members.  Failing to do so may result in stiff financial penalties and/or being charged with a misdemeanor or felony.

One question we often get, is whether or not the owner of the firm counts towards the number of employees.  This answer depends on the legal entity.  In a corporation, officers are automatically counted as employees.  Although they may elect to exclude themselves from coverage, they are still counted in determining whether a business has three or more employees.  Whereas for sole proprietorships, partnerships, or limited liability companies, the respective owner, partners, or members are not counted as an employees.  Even though they do not count as an employee, they may still choose to include themselves in coverage. 

Work Comp base rates vary by state and are based on the classification of business.  For example, a contractor will have much higher rates than clerical workers because the risk of injury is higher.  The base rate designated for that type of employment is then multiplied by gross payroll (per $100) to determine the premium.  When considering payroll, a minimum or maximum, per individual, may apply in certain situations.  For example, corporate officers have a minimum and maximum payroll: $41,600 / $83,200 (as of 4/01/2014).  If a sole proprietor or partner chooses to be included in coverage, a flat amount of $41,800 is used (as of 4/01/2014).  Regular employees do not have a minimum or maximum and are rated on their actual payroll amounts.

You should expect your Workers’ Compensation policy to be audited at the end of each policy term.  The carrier will ask for payroll information and based on the findings, will credit or debit your premium accordingly.  It is important to notify your agent if you have a major increase or decrease in payroll so that adjustments can be made mid-term.

If you have further questions regarding Workers’ Compensation or would like a quote, please contact Kelly or Adam at Lawyers Insurance.

Kelly Gold is a Property & Casualty Sales Agent and Account Manager for both Commercial and Personal lines at Lawyers Insurance.  For more information, contact Kelly at 800.662.8843 or Kelly@lawyersmutualnc.com.