Opting Out of Workers' Compensation as an LLC Franchise Owner: What You Need to Know

As a franchisee operating under an LLC, managing your workers' compensation coverage can be a crucial aspect of running your business. While it’s essential to ensure your employees are covered, you might consider opting out of workers' compensation for yourself. Here's what you need to know about the process and considerations of opting out as an LLC franchise owner.

Steps to Opt Out

1. Understanding Workers' Compensation State Regulations: The first step is to determine if your state allows LLC members to opt out of workers' compensation coverage. Since regulations vary by state, it’s vital to understand the specific requirements where your franchise operates.
2. File an Exemption Form: If your state permits opting out, you'll need to file an exemption form. This form can typically be obtained from your state's workers' compensation board or department of labor.
   Ensure the form is notarized if required and filed with both the state agency and your workers' compensation insurance provider.

3. Inform Your Insurance Carrier: Notify your workers' compensation insurance carrier about your decision to opt out. Provide the necessary documentation to ensure you are excluded from the policy while maintaining coverage for your employees.

Benefits of Opting Out

Cost Savings: Excluding yourself from workers' compensation can lower your insurance premiums, resulting in significant cost savings, especially if your role involves minimal physical risk

It is important you are listed as an “Officer Excluded”, otherwise your insurance carrier may charge you when an audit is performed. Insurance carriers charge around $72k per member of an LLC if you are not listed as an officer excluded at the time coverage is bound.

Potential Risks and Considerations

1. Uncovered Injuries: If you sustain a work-related injury, you won’t receive workers' compensation benefits, including medical coverage and wage replacement. Ensure you have alternative insurance to mitigate this risk.
2. Personal Liability: Opting out means you might be personally responsible for medical expenses and lost income resulting from work-related injuries.
3. Business Impact: An injury to an owner without workers' compensation coverage could have significant financial consequences for your franchise, especially if your role is vital to daily operations.

For LLC franchise owners, opting out of workers' compensation while keeping employees covered can offer substantial cost savings. However, it's crucial to weigh these advantages against potential risks and ensure you have adequate alternative protection in place. Always verify your state's regulations and consider consulting with an insurance advisor or legal professional to make an informed decision and navigate the process correctly.