Workers’ Comp Exemptions: Who Doesn’t Need Coverage?

“Exempt” is one of the most misused words in workers’ comp. Owners hear that sole proprietors are exempt, or that farms are exempt, and assume it applies to their whole business. Usually it does not. An exemption normally covers one category of person or one kind of work, under conditions, and it can disappear the day you hire someone. This guide goes through the common exemptions one at a time, with real state examples, so you can see what each one covers and what it does not.

1. Business owners

Most states do not require owners to cover themselves. The details depend on how the business is organized.

Sole proprietors and partners are generally not employees. Massachusetts, Wisconsin and Washington all say so directly. They can usually buy coverage for themselves if they want it.
LLC members are usually treated like partners. In Indiana, a member is not covered unless they file a written election with their insurer and the state board. In Colorado, a member who owns at least 10% can reject coverage by sending an approved form by certified mail.
Corporate officers are usually employees by default and must take a step to opt out. Massachusetts lets officers who own at least 25% request an exemption. Wisconsin lets a closely held corporation exclude up to two officers by policy endorsement. Indiana officers must serve written notice on the carrier and the board.

The catch: the owner’s exemption never extends to anyone else. The DIA in Massachusetts says this plainly. Workers who are not exempt members or officers must still be covered.

The big exception is construction in some states. Tennessee requires construction business owners to cover themselves unless they apply for and receive an exemption, and that exemption covers only the named person.

2. Small employers below the threshold

In states with a headcount trigger, businesses below it are outside the law. Georgia, North Carolina and Virginia start at three employees. Missouri and Tennessee start at five outside construction. Florida starts at four outside construction.

Two warnings. First, the count usually includes part-timers, and in some states officers or family members. Second, being below the line is temporary. Wisconsin will bring a one-employee business under the law once it pays $500 in wages in a quarter, and Michigan once one employee works 35 hours a week for 13 weeks.

3. Real independent contractors

A real independent contractor is not your employee, so you do not cover them. The problem is proving it. Every state applies its own test, and they are strict:

Wisconsin requires nine conditions, all met and maintained.
Colorado presumes employment unless the worker is free from control and runs an independent business.
Tennessee weighs seven factors, with control of the work counting most.
Indiana follows IRS guidelines and offers a state certificate of exemption, which is mandatory for some construction contractors.

Our 1099 workers guide covers how to document the relationship.

4. Farm and agricultural workers

Many states exclude farm labor, but often with a size limit. North Carolina covers farms with 10 or more full-time, non-seasonal workers. Virginia covers farms with more than three full-time employees. Michigan uses hours and weeks. Wisconsin covers farmers who employ six or more workers on the same day for 20 days in a year. Indiana and Missouri exclude farm labor more broadly.

5. Domestic and household workers

Household employees are often excluded, but not always. Massachusetts covers domestic workers who work 16 or more hours a week. Washington covers them once a household has two or more employees working 40 hours a week. Indiana, Missouri, Virginia, Wisconsin and Tennessee exclude domestic servants. A family with a full-time nanny should check its state rule.

6. Casual labor

Several states exclude casual work that is not part of your business, such as a dentist paying someone once to paint a fence. North Carolina, Virginia, Indiana and Tennessee all have versions of this. The exclusion is narrow. A “casual” worker who returns every week is no longer casual.

7. Specific occupations

States carve out certain jobs, usually under conditions:

Real estate agents paid by commission under a qualifying agreement are excluded in Virginia, Indiana, Missouri and Wisconsin.
Volunteers of nonprofits are excluded in Missouri and in Wisconsin when they receive no more than $10 a week.
Owner-operator truckers leasing to a motor carrier under a written contract are not employees of the carrier in Indiana.
Booth renters and certain for-hire drivers are excluded in Washington.

8. States with no mandate

Texas and South Dakota do not require private employers to carry workers’ comp at all. That is not an exemption so much as a choice, and the choice has a cost: uninsured employers can be sued by injured workers. In Texas, employers who opt out lose key defenses in those lawsuits.

Exempt does not mean “nothing to do”

Many exemptions only work if you file something. Wisconsin’s two-officer corporations must file a Corporate Officer Option Notice. Tennessee businesses that drop below five employees must file Form I-3 before dropping coverage. Colorado and Indiana owners must send written notices. Skipping the paperwork usually means the exemption does not apply.

Example: a two-owner landscaping LLC

Two partners run a landscaping LLC in Massachusetts with no employees. Neither must cover himself. In spring they hire a seasonal helper. From his first day they need a policy, because Massachusetts has no minimum headcount and the members’ exemption does not extend to him. If they had formed the same business in Missouri, they could have hired up to four employees before needing coverage, unless their work counted as building or repairing improvements, which Missouri treats as construction with a one-employee trigger.

Frequently asked questions

If I am exempt, can I still buy coverage?

Usually yes. Most states let exempt owners and below-threshold employers elect coverage. Clients often require it anyway.

Is a 1099 worker automatically exempt?

No. The state’s contractor test decides, not the tax form.

Can an exemption cover my whole crew?

No. Owner exemptions cover only the named owner or officer. Employees still need coverage once your state requires it.

Related guides

Sources

Last checked against the sources above and the linked state guides on October 2, 2026.

Written by Kevin Garcia de Paz

Independent researcher, not a licensed insurance agent or attorney. Every article on WorkCompByState is based on official sources listed on the page. How I research · Report an error