Do You Need Workers’ Comp Coverage for Family Members?

One question we get often from small business owners is whether they have to secure workers’ comp coverage for family members that work for them. The short answer is “yes,” in most cases.

Under most state laws, every employer that uses employee labor, including family members, must secure workers’ comp coverage. When we talk about family members we usually mean children, spouses, nieces, nephews, uncles, aunts, grandparents and cousins.

If you fail to include a working family member on your workers’ comp policy, you could risk a fine, so it’s wise to understand the regulations.

Here are a few scenarios:

Your nephew helps in your business for a few hours a day, but you don’t consider him an employee – Under most state labor laws he is considered an employee. An “employee” is defined as someone you engage or permit to work. Even though your nephew is part of your family, he is considered an employee and hence must be covered by workers’ comp insurance in case he is injured on the job.

If the state finds out that you don’t have the necessary workers’ comp insurance, you could face serious consequences including fines and even misdemeanor charges in some cases.

Also, if your nephew got hurt at the store, he (or his parents) could file a personal injury lawsuit against you if you don’t have him covered on your policy.

 

You run a diner and your daughter works 25 hours a week in the kitchen – Your daughter would be considered an employee subject to workers’ comp laws and she would not be able to be excluded on your workers’ comp (unless of course she was an owner/officer, member or partner).

 

You have a small business and your husband helps out about 10 to 15 hours per week – Your workers’ comp policy may not have to cover you and your husband.

But it could depend on whether your business is a sole proprietorship (which can be owned by a married couple in many states), a partnership or a limited liability company.

If you are a married sole proprietor, typically your insurance company will consider your spouse a co-owner and exclude them without any question. But different insurance companies will handle this situation differently, so it’s important to know how yours handles it.

If you’re a corporation, LLC or partnership, your spouse cannot often not be excluded merely because he/she is your spouse. If you formed a corporation, your spouse would have to own shares and be a titled officer in the corporation in order to be excluded.

If you formed an LLC, your spouse would have to be member of the LLC in order to be excluded. If you formed a partnership, your spouse would have to be one of the partners to be excluded.

If you have any questions or would like to speak to a professional advisor, please contact ACBI Insurance at 203-259-7580.

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