Workers Compensation Coverage 101

The first workers compensation law in Minnesota was passed in 1913, with modifications and updates to that law being made periodically to keep the requirements up to date with a changing workforce, society, and medical advances. The concept behind the law was to set aside money that would be paid out if an employee was injured on the job either to help them subsist as they recovered, or in more severe cases to help re-train them to do a different job when return to their original profession was no longer possible. It also limits the liability of the employer because neither party alleges negligence on the part of the other when a claim is filed.

Workers Compensation is required coverage for any company that retains an employee, even part time, and the cost of the insurance will be based on the number of employees and the size of the payroll. Failure to provide the insurance or under-reporting the number of employees or their payroll can expose the employer to fines, penalties, and payment of what is calculated that the employer should have paid in.

There are some exclusions to the requirement to carry coverage including:

1) Sole proprietors are not required to carry coverage for themselves or for their immediate family members

2) Partnerships…..either business or farm……. are not required to carry coverage for either partner or for their immediate family members

3) Closely held corporations which are corporations where the stock is owned by 10 or fewer people. This would only apply to those owners and their immediate families, non-related employees would still need to be covered.

4) Limited Liability Corporations are also partially excluded in that the managers and their immediate family members can be excluded, but again all non-related employees must be covered

5) Family farm operations can also exclude immediate family members as well as family members exchanging labor within the community, but all non-related employees would need to be covered.

6) Casual employees who work sporadically or on a one time basis for a company are not required to be covered

7) Most Independent Contractors are excluded from the requirement to carry coverage on them because they are all self-employed, although the employer should check the list of approved professions that are automatically excluded as opposed to the professions that require coverage.

Some businesses have requirements or best practices that aren’t typical to any other industry, though like contractors. While the owner may be excluded, they may elect to carry a policy on themselves but exclude themselves on the policy because clients may require a certificate. They also may want to carry coverage for subcontractors and employees of subcontractors even though they are not direct employees, their risk exposure could be such that it’s a good idea to carry the coverage.

Regardless of your particular situation, it’s an excellent idea to sit down with your insurance agent annually to discuss your company’s current and projected future situation so that they can advise you on what the requirements are as well as what would be prudent for you to carry.

Workers compensation has done a lot of good over the past 102 years, but it is only as good as the employers and employees who use the system and how wisely and honestly they invest in coverage and claims.


This post was written by Aaron Nicklay, Agent with Farmer’s Insurance. For more information on this topic and more and how Aaron can help protect your business, email him at or call (952) 229-5155.

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