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Owner exclusion rules by state (LLC, S-corp, sole proprietor)

When owners can exclude themselves from workers comp coverage. Sole proprietor and LLC member rules across all 50 states. How to elect exclusion, when self-coverage is required, and the trade-offs.

Published January 14, 2025 · 7 min read

Owner exclusion rules by state

Most business owners do not need workers compensation coverage for themselves. 48 of the 51 jurisdictions in our dataset allow owner exclusion for LLC members and sole proprietors. The exception is a small number of states that mandate coverage for specific entity types or owner roles. This page covers the default rules, the election process, and the trade-offs.

The default rules across states

From our state-facts dataset (51 jurisdictions surveyed):

Sole proprietor self-coverage required: 0 jurisdictions. No state we surveyed requires sole proprietors to carry workers compensation for themselves. Sole proprietors are free to elect coverage if they want it (some carriers will write it; some will not), but it is not mandatory.
LLC member self-coverage required: 0 jurisdictions. Same as sole proprietors. LLC members are typically excluded by default and can elect coverage if they want it.
Owner exclusion allowed: 48 of 51 jurisdictions. The remaining 3 jurisdictions have specific entity-type or operation-type rules that may require inclusion.

For specific state rules, see the state-facts file at /state/[code]/.

Why exclusion is usually the right choice for solo owners

If you are a single-member LLC, single-shareholder S-corp, or sole proprietor with no employees, including yourself in workers compensation coverage typically buys limited coverage at near-full price. Three reasons:

1. The owner-payroll is often rated at the operation’s class code. If you are a single-member carpentry-LLC working in the field, your owner-payroll gets allocated to NCCI 5403 at $4.80 to $9.20 per $100. On a $60,000 owner-draw, that is a manual premium of $2,880 to $5,520 per year, before LCM and modifiers. The actual cost can run $5,000+ for an owner who could have excluded.

2. The benefit cap for self-employed owners is often the state’s minimum weekly benefit. Owners are usually treated as their own employees at minimum-wage equivalents for benefit-calculation purposes. The TTD benefit if injured may be far below the owner’s actual income, leaving a substantial uncovered loss.

3. Personal disability insurance is a better product for most working owners. Disability income insurance, available through standard insurance brokers, replaces a percentage of the owner’s actual income up to high benefit limits, and pays whether the disability is work-related or not. A disability insurance policy is typically less expensive than workers comp for a working owner with high income, and the coverage is broader.

The exception: owners who work in high-injury operations and do not have personal disability insurance, personal health insurance, or significant personal savings. For those owners, including themselves in workers comp may be the most practical disability and medical-cost protection available.

How to elect exclusion

The mechanics vary by state and entity type, but the general process:

1. Identify the form. Most states use a specific exclusion-election form. The form is provided by the carrier in private-market states or by the state agency in monopolistic states (Ohio BWC, Washington L&I, Wyoming DWS, North Dakota WSI).

2. Complete and sign the form. The owner signs the election. For multi-member LLCs and multi-owner corporations, each excluded owner files their own election (with a few states allowing a consolidated election).

3. File with the carrier or state. Private-market states accept the filing through the carrier. Monopolistic states require filing directly with the state agency.

4. Confirm the policy reflects the exclusion. The next dec page should show the excluded owner’s payroll removed from the premium calculation. Verify it.

5. Re-elect at each renewal. Some states require a fresh election at each policy renewal. Others carry the election forward automatically. Check your state’s specific rule.

When you cannot exclude

Three situations where exclusion may not be available:

1. Construction-industry operations in some states. A handful of states require construction-industry owners to be covered regardless of entity type. Florida is the most prominent example: construction-industry owners with 1+ employees are subject to special rules.

2. Mandatory-coverage state-fund rules. Some monopolistic state funds (Ohio BWC, in particular) have specific rules for owner inclusion that differ from the private-market default. Check the state agency’s guidance directly.

3. Specific industries with statutory inclusion. A small number of states require specific industries (high-hazard occupations, professional licensees in certain fields) to maintain coverage including owner-payroll. These are uncommon but exist.

If your entity type or operation falls into one of these buckets, owner exclusion may not be available regardless of your preference.

Multi-owner LLCs and corporations

When the LLC has multiple members or the corporation has multiple officers, the exclusion-election rules become more complex.

LLCs. Most states allow each member to make an independent exclusion election. A two-member LLC can have one member excluded and the other included, with the included member’s payroll counted in the premium calculation.

Corporations. Some states require corporate officers to be excluded or included consistently. The “all officers in or all officers out” rule applies in some jurisdictions. Single-officer S-corps usually elect exclusion of the single officer; multi-officer corporations often include all officers because the consistent-treatment rule prevents selective exclusion.

The state-specific rule is in the state-facts source-citation URL. Check it before relying on a multi-owner exclusion plan.

The owner-payroll calculation when included

If you choose to include the owner (or are required to), the premium impact depends on how the state calculates owner-payroll.

Actual draw or salary. Some states use the owner’s actual draw or salary up to a state-specific cap. California uses a $54,600 to $145,600 range for 2024 corporate-officer payroll calculation, depending on whether the officer is included by election or by default.

Imputed minimum. Some states impute a minimum payroll figure for owner-coverage that does not depend on actual draw. The imputed minimum is typically near the state’s average wage or a multiple of the minimum weekly benefit.

Class-code-based. The owner’s payroll is allocated to whichever class code matches the owner’s actual operations. A working carpentry-LLC owner’s payroll goes to 5403; a desk-only LLC member’s payroll goes to 8810.

The combination of these rules can produce surprisingly high owner-coverage premiums for working owners in high-rate class codes. Worth the math before electing inclusion.

Trade-offs in plain language

Advantages of exclusion:

Lower premium (owner payroll removed from calculation)
Simpler audit (one less line item to verify)
Owner is not bound by workers comp exclusive-remedy rules and can pursue tort remedies if injured by a third party

Advantages of inclusion:

Owner is covered for medical and TTD if injured on the job
Workers comp medical is paid 100% by the carrier (no deductibles)
Family of an injured or deceased owner may receive benefits
Owner has access to vocational rehabilitation services in some states

The right choice depends on the owner’s personal coverage (health, disability), the operation’s risk profile, and the cost of inclusion at the operation’s class-code rate.

Practical decision framework

For a typical small-business owner deciding whether to elect exclusion:

What is the owner’s class-code rate? If the operation rate is 8810 (clerical, $0.18 to $0.67 per $100), the owner-coverage cost is small and inclusion may be reasonable. If the rate is 5403 (carpentry, $4.80 to $9.20), exclusion is usually correct.
Does the owner have personal health insurance? Workers comp pays 100% of injury-related medical without deductibles. For owners on high-deductible health plans, this is a meaningful coverage layer. For owners on low-deductible employer-sponsored health insurance, it is less material.
Does the owner have personal disability insurance? Disability insurance replaces income for non-work and work-related disabilities. For owners with strong disability coverage, workers comp is duplicative. For owners with no disability coverage, workers comp may be the only available wage-replacement source.
What is the owner’s actual exposure to injury? A carpentry-LLC owner who works in the field has different exposure than a consulting-LLC owner who works at a desk. Match the coverage to the actual exposure.
What does the math look like? For most working owners, the inclusion premium is in the $1,000 to $5,000 range annually. Compare against the cost of personal disability insurance ($500 to $2,500 annually for typical income levels) and the value of the workers comp medical coverage layer.

This is general information, not legal or insurance advice. The owner-exclusion election has substantial coverage and tax consequences. Consult a licensed broker or attorney for your specific situation before making the election.

Frequently asked questions

Can I exclude myself from workers comp as the LLC owner?

Yes, in 48 of the 51 jurisdictions in our dataset. LLC members can elect exclusion from coverage in most states. The exclusion typically requires a written election filed with the carrier (or the state in monopolistic states) and removes the owner's payroll from the premium calculation.

Do sole proprietors need workers comp?

Almost never as a strict requirement. 0 of 51 jurisdictions require sole proprietors to cover themselves. Sole proprietors can elect to include themselves voluntarily, but coverage is not mandatory in any state we surveyed.

What about S-corp owners?

S-corp owners and corporate officers can typically elect exclusion from workers comp coverage in most states, with state-specific rules. Some states require corporate officers to be covered (or excluded) consistently for all officers. Single-officer S-corps usually elect exclusion.

Should I exclude myself if I have employees?

Usually yes if your owner-payroll is rated under a high-risk class code. Owner-exclusion removes the owner's payroll from the premium calculation, which lowers premium directly. You forfeit the right to file a workers comp claim against your own policy if injured, so the trade-off is your owner-coverage benefits versus the premium savings.

What's the downside of owner exclusion?

If you're injured on the job, you cannot file a workers comp claim against your own policy. You bear your own medical costs, lost income, and disability through personal health insurance and personal disability coverage. For owners with high-risk operations and inadequate personal coverage, exclusion can leave a coverage gap.

Can I be partially excluded?

Generally no. Exclusion is binary: either you are included in the policy (and your payroll counts) or you are excluded (and your payroll does not). Some states allow corporate officers to be excluded selectively, but for LLCs and sole proprietors the exclusion election is typically all-or-nothing for the elected owner.