Workers' compensation is an insurance program or policy that provides compensation to employees injured on the job. Although federal laws cover federal, nonmilitary employees, all other workers' compensation requirements are state mandated. Generally, workers' compensation laws apply to all employers who have non-owner employees. Most states treat corporations and their shareholders separately so the exemption of an S corporation owner depends on the laws of the state in which the S corporation does business.
Workers' compensation insurance provides coverage that is similar to liability insurance, but it is strictly reserved for coverage of company employees who are injured while on the job. Most states mandate that employers provide workers' compensation for employees, and those states assess penalties if they determine that no workers' compensation policy exists. Providers base rates on the inherent risk or hazard of the type of job an employee performs. For example, a manufacturing or construction job carries higher risks than an office administrative job.
Workers' compensation policies and laws protect employees injured on the job. The laws ensure that injured or disabled employees receive medical treatment and health care. Laws generally provide for appropriate payments to employees temporarily or permanently unable to work as a result of the injury or disability. This keeps costs down as it reduces the likelihood of employee lawsuits and the inherent attorney's fees and potentially high punitive damage judgments. Workers' compensation also provides benefits to the spouse and children of a worker killed by a job-related accident or illness.
A few states, including Texas, do not require workers' compensation insurance. Many states allow S corporations whose only employee is the owner to exempt the owner from state-mandated workers' compensation requirements. In North Carolina, officers may exclude themselves from coverage, but they count in the determination of the number of employees, but in Arizona all employees of a corporation must have coverage, even if they are shareholders.
If your state allows S corporation officers exemption from workers’ compensation, a general liability insurance policy will provide similar protection from accidents. These policies typically pay medical costs and legal fees. The policy may pay a lump sum for a disability incurred by a customer injured on the premises but will not do the same for the policyholder. For ongoing disability that results in an inability to perform work, short-term and long-term disability policies replace a percentage of salary. Purchase business interruption insurance if the business could fail if you are unable to work.
