Owners, Partners and Executive Officers - Workers Compensation

Executive boardroom with man at head of table
Image courtesy of [Paul M O'Connell] / Getty Images. Image courtesy of [Paul M O'Connell] / Getty Images

One question that business owners often ask is whether sole proprietors, partners and corporate officers are subject to compulsory workers compensation laws. Must these individuals be covered under a workers compensation policy? This article will address that question.

Executive Officers

In most states executive officers are considered employees of the corporate entity. Like other employees, they are automatically covered under workers compensation laws.

However, many states permit at least some executive officers to opt out of coverage. The laws regarding executive officers vary from state to state. Here is a general overview.

  • A number of states permit officers to exclude themselves from coverage under the company's workers compensation policy if the company has less than a specified number of officers. This number is typically small, such as two or four. Officers may be allowed to opt out of coverage only if the company has no other employees. If the company employs other workers or has the specified number of officers, all officers may need to be covered.
  • Some states permit all officers to exempt themselves from coverage. Others allow only a specified number of officers to opt out.
  • Special rules may apply to officers of closely-held private corporations. Workers compensation laws in some states specifically exclude executive officers that are the sole shareholders of the company's stock. In other states such officers are automatically covered under the laws but may choose to opt out.
  • Special rules may apply to non-profit companies. Many states do not require executives to be covered if they are not compensated for their services. Depending on the state, non-compensated executives may be excluded at the option of the executives themselves or the organization.
  • A few states have enacted special rules that apply to executives in the construction industry.
  • Executive officer exemptions may need to be renewed periodically, such as every two years.

States that allow executive officers to opt out of (or in some cases, opt into) workers compensation coverage have devised forms for this purpose. These forms should be available from your insurer. Officers who wish to reject workers compensation coverage must complete the form and return it to the insurance company. The insurer will forward the form to your state workers compensation authority.

Sole Proprietors, Partners and Members

In contrast to executive officers, sole proprietors, partners and members of limited liability companies are typically excluded from coverage under state workers compensation laws. Nevertheless, many states permit such individuals to elect coverage. To obtain coverage under the policy, a sole proprietor, partner or members of a limited liability company must complete a form designated by your state and return it to the insurer. The insurer will then forward the form to the applicable state workers compensation authority.

Some states exclude partners and sole proprietors but cover members of limited liability companies. Some states automatically cover family members of sole proprietors and partners, even though the sole proprietors and partners themselves are excluded.

To opt out of coverage, family members must complete a form and forward it to the insurer.


While some executive officers may opt out of coverage, many choose or are required to be coveredĀ  under the employer's workers compensation policy. Generally, executive officers are assigned to the classification that best describes their duties. For example, suppose a company operates a winery. The firm has four executive officers, all of whom work in the winery business. The officers will be assigned the same classification as winery employees.

Some executive officers perform mainly clerical duties in an office. Such officers may be assigned a separate classification, Executive Officers NOC (NOC means not otherwise classified).

When sole proprietors, partners and members are covered under a workers compensation policy, they should be classified and rated based on their job functions.

In most cases, these individuals will be classified in the same manner as the firm's employees.

Minimum and Maximum Payrolls

When executive officers, sole proprietors, partners and members are covered under a workers compensation policy, they are usually subject to minimum and maximum payroll requirements. These amounts are determined by state law. If the actual payroll for such individuals is less than the specified minimum, the minimum payroll will be used for rating purposes.

For example, suppose a workers compensation law specifies a minimum annual payroll of $52,000 for each executive officer. The maximum payroll is $125,000. If an officer earns less than $52,000, the insurer will calculate a premium for that officer based on a payroll of $52,000. If the officer's annual salary is $150,000, the premium for that officer will be calculated based on a payroll of $125,000. Because the officer's actual salary ($150,000) exceeds the $125,000 maximum, the maximum payroll applies.