If you run a family business, you may wonder if you still need workers’ compensation insurance for the relatives who work for you.
The rules on workers’ comp coverage for family members vary by state. In some cases, the type of work your employees do is a factor in determining if you need workers’ comp insurance for family members.
Each state sets its own rules regarding coverage—and its own list of exemptions.
In California, for example, if you have employees (including those who are family members), you’re required to have workers’ comp insurance. If your business isn’t based in California but your employees frequently work in that state or live in California, you’ll also need workers’ comp insurance.
In Iowa, however, family members (including spouses, parents, brothers, sisters, children, and step-children) who work on family farms are exempt from coverage. Similar laws exist in Nebraska, where farms are exempt from providing coverage if they only employ spouses or relatives related by blood or marriage.
Depending on the state, a business owners’ immediate family members who work for the business (including spouses, children, and parents) may not require coverage.
Other common exemptions include:
- Family members living in the same home as the business owner
- Casual employees with irregular schedules
- Employees with annual wages under a certain dollar amount
- Employees covered under federal programs for liability for injury, disease, or death
- Independent contractors
While exemptions like these can help lower your insurance premiums, fines for not protecting workers who should be covered—including employees misclassified as independent contractors—can be costly. In most cases, it’s better to be safe than sorry.
You should always check with your state’s employee compensation agency to see if your business qualifies for a workers’ comp exemption.
Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation or check your current rate in 3 minutes.