Workers' Comp for Owners?
February 25, 2005
I am the Vice President of Sales and part owner of a custom millwork company. My partners (majority share holders) work in the mill running the molder and ripsaw. The two of them are paid approximately 100k a year. However, since workers comp is based on your payroll level, we got "back charged" for our increase in wages approximately 15K (BS to begin with). Is there a way that the owners can somehow be exempt from this end of the pool without losing the coverage if something were to happen behind the moulder or ripsaw? Not trying to scam them by any means, but wondering if any of you have come across such a thing before. We live in NY state.
Are you incorporated? I don't know the laws in New York, but here in CA they allow the S corp, which has many benefits. For example, I take a small wage, pay all my payroll deductions on that, then I receive profit sharing or distributions for the rest. I only pay social insecurity and workers comp on the wage. I also run my payroll through a leasing agency, who pay all the taxes, are liable for all the deadlines, and get me a better rate on my workers comp than I could get myself, and charge me 2%.
We don't even pay for workers comp on ourselves as the owners. Our health insurance would cover us in case of an injury.
In NJ, workman's comp for an owner is an option. There is a form from my insurer that I need to sign every year stating that I do not want coverage. Just make sure you have a good health insurance policy. To be on the safe side if you do get hurt, say you were working on your house, not at work. You can also keep your gross pay down by having the company provide as many other fringe benefits as possible, i.e. company car, health, life, phones, meals, retirement package, etc. Talk to your accountant to come up with as many options as possible. There is no black and white when it comes to what is allowed, just lots of shades of grey. Just make sure you document everything with receipts and don't get too crazy. Paying for the costs of an employee family vacation is one thing, but making a mortgage payment for them or buying them their weekly food is definitely out of the question. The other plus side to more benefits is it is a 100% write-off for the company, but gross pay is totally taxable to the individual. It is a win/win to keep weekly pay to a minimum and give as many benefits as possible.
Here in New York, an owner of a company can opt out of workman's comp, but you will then not be covered, and your own personal health insurance would have to be the responsible entity.
And if you are an S corp, you can be paid a lower salary from which you get withholding deducted, and also workman's comp is based on that. Any profits would then become K1 distributions, which, while taxable as income, are not subject to withholding or WC taxes.
Might want to check with the pool carrier. In NY, the owner can opt out of the coverage only if the owner's policy is in the standard market, not the pool, and only if the owner doesn't physically manufacture anything. The pool will most likely require you to carry coverage on the owners. It is perfectly legal to pay the owners a small stipend and then bonus them at yearend. Only a portion of the bonus would be subject to premium. Keep in mind that I'm not a licensed agent in NY and your best bet is to contact a licensed agent and tell them of your dilemma. Oh, one other word of caution. If you have already been audited and have not paid the back charge, you will be blacklisted until it is paid. What that means is that if you fail to pay the additional premium and you are cancelled for non-payment or if you decide to avoid the charges by changing carriers, no one will write your coverage. Another alternative might be the employee leasing route, where the premiums tend to be much cheaper, but are paid weekly versus monthly.
From the original questioner:
Does anyone here deal with private brokers for their workers' comp, or the state insurance fund? If you do use the private, do you prefer it over the state and for what reasons?
They can't include things like company trucks and charge card accounts that are used to buy clothing and stuff for work. There are many little perks that aren't considered wages. You have to be creative. When I need to carry it, I put it in my wife's name, and I am just another employee drawing a salary of $100.00 a week and paying worker's comp on myself at 21% of my salary. Not much of a check if I was hurt, but they still have to pay medical bills regardless of what I make a week, and dismemberment settlements are a fixed amount if you cut off your hand.
The comments below were added after this Forum discussion was archived as a Knowledge Base article (add your comment).
Comment from contributor A:
I'm a private broker in Virginia. Here owners are able to cap out the amount they are required to pay workers compensation insurance on, it's a maximum of $58,000. This would mean that even if you were making 100k, you would only have to pay workers compensation on 58k and you would still receive benefits of course. Iím not clear on what state you are in so I can't give you any further advise in that regard. One thing I will mention is milling is a pretty hazardous class, I wouldn't recommend going uninsured even for owners or partners.