Are Nonprofits Exempt from Workers' Comp?

Due to the nature of the business, nonprofits operate with reduced budgets, fewer staff members, and different government classifications than their for-profit counterparts. And it’s for these reasons that some believe that nonprofits are exempt from having workers’ compensation insurance. Is this true?

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In this article, we'll look at four common questions about nonprofit exemptions and workers' comp insurance:

Are nonprofits exempt from workers' compensation insurance?
Why do nonprofits need workers' comp insurance?
Are there other important insurance policies for nonprofits?
How much do I have to pay if a nonprofit is not entirely covered?

As with any insurance-related question, consulting an independent insurance agent can give you the clearest picture about your nonprofit’s requirements for worker’s comp insurance. Experienced in your state’s particular requirements, an independent insurance agent will explain how to comply with state laws as well as offer insurance alternatives that protect your needs for employers and employees.

Are nonprofits exempt from workers' compensation insurance?

No. Nonprofits are not exempt from having workers' compensation insurance for their employees. This makes sense, because workers' comp insurance is a way to protect businesses from lawsuits while protecting the livelihood of employees and their families. 

State laws set workers’ comp requirements for nonprofits in nearly the same way as those that for-profit businesses must comply with. As a general rule, while each state has its own guidelines for how nonprofits may conduct their business, the requirements are the same and generally reflect the same guidelines. 

Alabama nonprofits are only required to carry workers’ compensation when they have five or more employees. Pennsylvania requires coverage for all nonprofit employees. 

There is, however, a gray area when it comes to volunteers, self-employed persons,  independent contractors, and nonprofits run by sole proprietors. Volunteers are generally exempt until they are considered long-term volunteers, as are independent contractors. But the nature of the work relationship, length of employment, and other factors differ by state.

To get a clearer picture of what the requirements are for nonprofits, speak with an independent insurance agent.

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Why do nonprofits need workers' comp insurance?

Workers' compensation insurance is required in almost every state for businesses that have employees, except Texas. Workers' compensation insurance can cover medical costs and lost wages for work-related injuries of a nonprofit’s employees. 

Typical examples of why nonprofits need workers' comp insurance include:

• A slip-and-fall injury at a community center
• Dog bites at an animal shelter
• Burns from an oven at a soup kitchen
• Unsafe shelving collapses at a food pantry
• And so forth

Nonprofits are generally not exempt from carrying this coverage, although states vary on how many employees need to be covered, the extent of coverage, and other factors. By carrying workers' comp insurance, nonprofits are able to protect themselves from lawsuits that result in large legal fees even if the claims are found to be frivolous. Workers who accept workers' comp settlements waive their legal rights to a lawsuit, so it’s important 

Are there other important insurance policies for nonprofits?

The purpose of workers’ compensation insurance is to protect the financial livelihood and well-being of employees, as well as protecting a business from paying exorbitant settlements that could bankrupt a nonprofit. However, workers’ comp insurance doesn’t cover other common risks to a nonprofit, such as property damage and visitor injuries. 

To adequately protect your nonprofit, it is recommended that nonprofits purchase business insurance policies, including:

• General liability insurance
• Professional liability insurance
• Commercial property insurance
• Directors and officers insurance
• Employment practices liability insurance
• And more

Speak with an independent insurance agent to determine which insurance policies best fit your nonprofit. You may be able to bundle these policies, including workers’ comp insurance, under a business owners policy to consolidate your insurance needs, receive discounts, and simplify the process of protecting your nonprofit. 

How much do I have to pay if a nonprofit is not entirely covered?

Nonprofits, like other businesses, need to be covered by workers' comp insurance according to state guidelines. Failure to meet minimum coverage amounts for employees and other workers can result in large fines and even criminal charges. Failure to carry workers' compensation insurance in Colorado, when required, is up to $250 for every day that the employer fails or has failed to keep the insurance for the first violation, with a maximum of $500 per day for subsequent violations.  

Also, workers' comp insurance was designed as a program to not only cover the financial livelihood of injured workers, but also to cover the financial prospects of a business as well. Without having workers' comp insurance in place, nonprofits open themselves up to lawsuits, which can lead to significant legal fees, higher insurance premiums, large settlement amounts for many years, and other negative outcomes. To determine how much coverage you need and what risks are associated with your nonprofit, speak with an independent insurance agent today.