Workers Compensation Coverage for Business Leaders

Leadership comes with risk, but not all of it shows up on the balance sheet. When business leaders are injured on the job, whether they’re covered by workers compensation often depends on a mix of state laws, manual rules, business structure and documentation that’s easy to overlook.

A slip on a wet floor. A fall from a ladder while checking inventory. A strain injury from long hours of repetitive motions at a desk. Accidents happen even to leadership. But if a business owner, officer, LLC member or partner is injured on the job, will they be covered by their business workers compensation policy?

Who falls under that coverage and who doesn’t can trip up even the most seasoned leaders. When it comes to leadership, the rules can be tricky.

Coverage for business leaders and management can often hinge on a tangle of state laws, business structure and forms that leaders may not realize they signed or overlooked. And the implications for getting it wrong are real. A misstep can lead to denied claims, added costs or a key stakeholder left without coverage when it’s needed most.

Let’s break down how company structure and state regulations might shape coverage, how those decisions may impact premiums and some considerations to weigh when deciding whether to include or exclude owners and officers from a workers compensation policy.

Getting it right isn’t just about compliance; it’s about protecting company leadership and the business.

How workers compensation premiums are calculated

Understanding the impact of including or excluding leadership starts with the basic formula behind workers compensation premium:

Payroll × Classification Rate × Experience Modifier = Premium

In short, the more payroll included on a policy, the higher the premium. But the ripple effect of that calculation isn’t always straightforward – especially when it comes to business owners, officers, members or partners. That’s why the decision to include or exclude them is more than just a checkbox. It can have a meaningful effect on a company’s bottom line. Inclusion or exclusion doesn’t only affect who’s protected – it can also shift how premiums are calculated, how much it costs and how exposed the business might be when something goes wrong.

• Including an owner/officer’s payroll adds to the premium base. But many states cap how much of that payroll can be counted to help keep premiums predictable for high earners. Some states also impose minimums to ensure that even low-paid or part-time officers generate a baseline premium.
• Excluding a stakeholder may reduce costs but also removes a key safety net. If an excluded owner is injured on the job, they’ll need to rely on health insurance or savings if available.
• Each situation comes with trade-offs in cost, coverage and compliance. Having a structured discussion about these considerations can help ensure that the policy reflects the reality of the business.
• To stay compliant and make an informed decision, business leaders should seek guidance from qualified legal counsel and work closely with their insurance agent.

Is the boss’s salary included?

At the heart of this issue is a deceptively simple question: Is the boss’s salary used to calculate a workers compensation premium? And how does that decision shape who’s protected – and who’s not?

Throughout this article, when we refer to the “boss” – owners, officers or business leaders – we’re talking about individuals in formal leadership or ownership roles in their respective businesses:

• Corporations - Executive officers such as president, vice president, secretary and treasurer.
• LLCs - Members and/or managers.
• Partnerships - Partners, whether general or limited.
• Sole Proprietorships - The sole proprietor who owns and operates the business.

How these roles are handled in the workers comp policy determines whether they’re covered or left exposed.

If included

That individual’s payroll is factored into the premium calculation, and they are generally eligible for medical and wage replacement benefits if injured at work.

If excluded

Their payroll is removed from the premium base, and they waive access to workers compensation benefits and must rely on health or disability insurance instead to cover medical treatment if injured at work.

But it’s not always obvious who’s included or excluded because coverage often hinges less on job title than how a business is legally structured.

How legal entity structure shapes the rules

Whether a business operates as a corporation, LLC, partnership or sole proprietorship plays a major role in determining whether a leadership team is automatically included or excluded from coverage under their business’s workers compensation policy.

Corporations

• Corporate officers who manage business operations – president, vice president, secretary or treasurer – are often included in coverage by default.
• Opting out usually requires submitting a formal rejection to the workers compensation carrier.
• Many states use standardized minimum and maximum payroll amounts for premium calculations, regardless of actual compensation.

Limited liability companies (LLCs)

• Members are owners of the LLC; managers may or may not be.
• Rules vary significantly by state. And in some states, members are excluded by default; in others, they are included unless they opt out.

Partnerships

• A partner is an individual who co-owns and operates the partnership business, sharing in profits and losses. Rules can vary between general partners (often involved in operations) and limited partners (typically investors).
• General partners are typically excluded from coverage unless they formally elect to be included.

Sole proprietorships

• Sole proprietors are generally excluded by default but may opt into coverage if the state allows it and the correct forms are filed.

Business structure and how actively each stakeholder participates in daily operations can determine whether coverage is automatic, optional or restricted.

Business structure is just one consideration. An extra layer of complexity factors in when it comes to the state the business operates in – each has its own laws and rules.

State-by-state differences add complexity

Because workers compensation is regulated at the state level, there is no single national rule about whether owners and officers must be included or excluded. State laws typically fall into three categories:

1. Mandatory inclusion - Certain roles, like corporate officers, may be required to carry coverage in some states, with limited or no opt-out provisions.
2. Optional inclusion/exclusion - Many states allow owners or officers to opt out of coverage if they follow strict documentation rules.
3. Ambiguity or special conditions - Some states don’t clearly define roles like LLC members, creating confusion. Others base inclusion/exclusion rules on ownership percentage or level of involvement in the business.

Examples

• South Carolina - Ambiguity around LLC member coverage due to no statutory definition has led to varied interpretations and legal scrutiny.
• Oklahoma - Legislative reform in 2014 changed the standards for officer inclusion, underscoring the need to monitor updates.

What to weigh when making the call

To make sure coverage aligns with the type of business entity, operations and risk tolerance, take the time to:

1. Understand the rules - Know what’s required or optional in each state where the business operates – and whether the leadership team’s roles fall into mandatory or elective coverage categories.
2. Assess risk exposure - Are owners actively working on-site or performing mainly administrative duties?
3. Evaluate alternative coverage - Do they have health or disability insurance that would apply to work-related injuries? And how do those benefits compare to workers compensation?
4. Consider the financial impact - How much would inclusion or exclusion affect premium costs, especially in light of state-imposed payroll minimums or caps?
5. Check for contractual obligations - Some clients, lenders or project partners may require that all personnel – including owners – be covered.
6. Document your decision - File any necessary election or rejection forms, whether mandated by the state or provided by the insurance carrier, and keep them on record.
7. Report payroll data accurately - Coverage decisions must align with payroll reported to the insurance carrier.
8. Revisit workers comp strategy regularly - Ownership structures evolve, roles shift and state laws change – so review annually.
9. Stay informed - Legislative updates can reshape coverage rules. Stay ahead by consulting trusted advisors – including your legal counsel, insurance partner and insurance resources.

Travelers has seen how easily businesses can overlook these decisions and how costly those oversights can become when a claim arises. But with the right structure and guidance, owners and officers can be protected just as effectively as the teams they lead.

At Travelers, we bring more than 100 years of experience in workers compensation and a deep understanding of how policy design, payroll practices and risk exposure intersect. Our role is to help leadership think strategically – and make informed decisions – so they can focus on growing their business with confidence.

Contact your Travelers representative to learn more.

By Jean Tenan – Director on the Travelers Workers Compensation Product Team.