Do I Need Workers’ Compensation Insurance in Tennessee?
If you own a business in Tennessee and have employees, there’s a good chance you’ve asked this question:
Do I actually have to carry workers’ compensation insurance?
For many Tennessee businesses, the answer comes down to the number of employees you have and the type of work your business performs. But the rules are a little more complicated than simply counting the names on your payroll.
Part-time employees can count. Family members may count. Construction businesses operate under different requirements. And calling someone a “1099 contractor” doesn’t automatically mean that person is considered an independent contractor under Tennessee workers’ compensation rules.
Here’s what Tennessee business owners should know.
How Many Employees Require Workers’ Comp in Tennessee?
For most Tennessee businesses outside the construction and coal-mining industries, workers’ compensation insurance is generally required once the business has five or more employees.
That includes both full-time and part-time employees.
For example, suppose you own a small retail business with:
- 2 full-time employees
- 2 part-time employees
- 1 additional part-time employee who works only on weekends
You may think of yourself as having only two “regular” employees. For workers’ compensation purposes, however, those part-time workers can count toward the employee total.
Once you reach five employees, the business may be required to carry workers’ compensation coverage.
Do Part-Time Employees Count?
Yes.
Tennessee includes part-time employees when determining whether a non-construction business has reached the five-employee threshold.
Working family members and minors can count as employees as well.
This is important for growing businesses because you don’t necessarily have to hire five full-time employees before workers’ compensation requirements become relevant.
A business with three full-time employees and two part-time employees may have already reached the threshold.
Tennessee Construction Businesses Have Different Rules
If you’re in construction, don’t rely on the five-employee rule.
Tennessee generally requires construction employers with one or more employees to carry workers’ compensation insurance for those employees.
That can include seasonal employees, part-time workers, family members working for the business, and employees who work only as needed.
The nature of the business matters, too. If the company is considered a construction services provider, an administrative employee working in the office does not automatically fall outside the requirement simply because that person never sets foot on a jobsite.
Construction business owners are also generally required to have coverage on themselves unless they qualify for and obtain an exemption or another specific exception applies.
Can a Construction Business Owner Be Exempt?
Potentially.
Tennessee has a Workers’ Compensation Exemption Registry that allows certain qualifying construction business owners to obtain an exemption from covering themselves.
Depending on the business structure and ownership, eligible applicants can include certain:
- Sole proprietors
- Corporate officers
- LLC members
- Partners
There are ownership and other eligibility requirements that must be met.
Here’s the important distinction:
An owner’s exemption does not exempt the company’s employees.
If an eligible construction business owner receives an exemption for himself or herself and then hires an employee, that employee still needs to be covered when Tennessee law requires it.
What About LLC Owners and Sole Proprietors Outside Construction?
The rules can be different for non-construction businesses.
For purposes of determining whether a non-construction business has reached Tennessee’s five-employee threshold, sole proprietors, partners, and LLC members generally are not included in the employee count.
Corporate officers are different. A compensated corporate officer can count toward the employee threshold even if the officer elects to exclude himself or herself from coverage.
That distinction is one reason it’s worth reviewing the actual ownership structure of your business instead of assuming every “owner” is treated the same way.
What If My Workers Are 1099 Independent Contractors?
This is an area where business owners need to be careful.
Giving someone a Form 1099 does not automatically make that person an independent contractor for Tennessee workers’ compensation purposes.
Tennessee looks at the actual working relationship.
The Bureau of Workers’ Compensation uses multiple factors when evaluating whether someone is an employee or an independent contractor, including who controls the work, how the worker is paid, who supplies tools and equipment, scheduling, the ability to hire helpers, and whether the worker is free to provide services to other businesses.
Consider a simplified example.
Suppose your business hires someone as a “1099 contractor,” but you determine when that person works, control how the work is performed, provide the equipment, and otherwise treat the worker much like an employee.
The fact that you issued a 1099 may not settle the question.
Misclassifying employees as independent contractors can create serious workers’ compensation and other legal issues.
What Does Workers’ Compensation Actually Cover?
Workers’ compensation is designed to provide benefits when an employee suffers a qualifying work-related injury or occupational illness.
Depending on the circumstances, benefits can include medical treatment and partial replacement of lost wages. Other benefits may apply depending on the injury and claim.
Imagine an employee slips while carrying inventory, falls and suffers a serious shoulder injury.
There could be emergency treatment, imaging, physical therapy, follow-up appointments, time away from work and potentially surgery.
A workers’ compensation claim may respond to covered medical treatment and qualifying wage-loss benefits according to Tennessee law and the circumstances of the claim.
Workers’ compensation is separate from general liability insurance. Having a general liability policy or commercial umbrella does not mean your employees’ work-related injuries are covered by those policies.
What If I Have Fewer Than Five Employees?
If you operate a non-construction business with fewer than five employees, you may not be required by Tennessee law to carry workers’ compensation insurance.
But “not required” and “not worth considering” are two different things.
Tennessee allows certain employers that are not legally required to carry workers’ compensation to elect coverage voluntarily.
Why would a small employer do that?
Because a serious workplace injury can still happen when you have two employees instead of five.
There’s another consideration. Tennessee notes that when an employer is not required to carry workers’ compensation and an employee is injured at work, that worker is not entitled to workers’ compensation benefits, but may not be prohibited from filing a lawsuit against the employer.
For a small business, that potential exposure is worth discussing with an insurance professional and, when appropriate, legal counsel.
What Happens If I’m Required to Have Workers’ Comp and Don’t?
Going without required coverage is not simply an insurance issue. It can become a compliance issue.
Tennessee’s Uninsured Employers Fund is responsible for enforcing workers’ compensation coverage requirements and can investigate employers that are required to carry coverage but fail to do so.
More importantly, imagine dealing with a serious employee injury and discovering afterward that the coverage your business was legally required to maintain was never in place.
That is not the time you want to start figuring out how Tennessee’s workers’ compensation rules apply to your company.
What About Businesses Based Outside Tennessee?
Being headquartered in another state doesn’t necessarily mean Tennessee’s workers’ compensation requirements can be ignored.
An out-of-state business with employees working in Tennessee may be subject to Tennessee workers’ compensation law, and an existing policy from another state may not automatically satisfy Tennessee’s requirements.
There are limited circumstances in which temporary work in Tennessee may qualify for an exemption for non-construction businesses.
Construction companies face stricter requirements. Out-of-state construction services providers operating in Tennessee generally need appropriate Tennessee workers’ compensation coverage from their first day of operation in the state.
If your employees cross state lines for work, it’s important to review where your policy provides coverage before the job begins.
How Do I Know If My Tennessee Business Needs Workers’ Comp?
A few questions can help point you in the right direction:
How many people work for the business?
Count part-time workers too.
Are you in construction?
If so, the rules are different and coverage may be required with just one employee.
How is the business structured?
Sole proprietors, LLC members, partners and corporate officers can be treated differently.
Do you use independent contractors?
A 1099 by itself doesn’t determine whether a worker is legally an independent contractor.
Do employees work in multiple states?
You may need to review whether your policy is properly set up for those states.
And even if Tennessee law doesn’t require your business to carry workers’ compensation, it can still make sense to consider the protection voluntarily.
Need Help Figuring Out Your Workers’ Comp Coverage?
Workers’ compensation can get complicated quickly, especially as a business hires employees, uses subcontractors, takes on construction work or begins operating across state lines.
The Talley Insurance Group works with Tennessee businesses to help them understand their commercial insurance options and find coverage that fits the way they actually operate.
If you’re not sure whether your business needs workers’ compensation insurance, or you want to review an existing policy, Request a workers’ compensation insurance quote from Talley Insurance Group.
A short conversation about your employee count, business structure and operations can help determine what questions need to be answered before you choose coverage.
Insurance coverage, eligibility, exclusions, limits and requirements vary by policy, insurance carrier, business structure, industry, state law and individual circumstances. This article is for general informational purposes only and is not legal advice or a guarantee of coverage. Tennessee workers’ compensation requirements can change, and specific exemptions or exceptions may apply. Consult the Tennessee Bureau of Workers’ Compensation, qualified legal counsel and your insurance professional regarding your specific situation.
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