Executive Officer Exemptions in Workers' Comp - the whole story

Pennsylvania and many other States allow Executive Officers of corporations to exclude themselves from Workers' Compensation benefits.   This can be viewed as a money-saving opportunity for employers, but it also carries a great deal of risk for the Officers themselves.   While the financial benefits seem attractive, this brief article hopes to address some of the concerns that often don't come to light.

Let's look at Pennsylvania as one example.   In PA, the 'threshold' for a Corporate Officer to be eligible to elect Workers' Comp exemption is that they must own 5% of the shares or the Corporation (there are similar opportunities for Members of LLCs, Sole Proprietors, and Partners to elect to be included or excluded).   Each Exempt Officer needs to complete an individual Executive Officer Exemption form acknowledging that they know they have voluntarily waived the Workers' Compensation benefits.   In addition, there is also a Corporate declaration that needs to be completed by the Corporation electing the exemption process.   Those declarations need to be filed with the Insurance Company and they file it with the Department of Labor & Industry.  The reason that so much paperwork is required should make it clear that this election should not be taken lightly because you are 'waiving' the legal right to collect unlimited Medical Expenses and unlimited Lost Wages that you may be entitled to under laws that have been in place for nearly 100 years.  

The potential savings can be compelling, but this waiver of rights is not insignificant.  We would recommend that you not take this decision lightly as the whole exemption process means exposing some of your Key Executives and most valuable assets to potential financial loss for both unpaid medical claims and lost wages.  It is therefore incumbent on everyone involved that due diligence and caution be exercised before making this election.  This includes a thorough review of Group Health plans and disability benefits to make sure that they would respond to claims for these potential medical costs and lost wages.  Many of today's Health Plans contain exclusions "if you are eligible for Workers' Compensation' or similar language.   Clearly someone who waives their right to Workers' Compensation benefits was 'eligible for Workers' Compensation' and therefore might easily have a medical claim denied.  Similar exclusions might exclude coverage for 'work related injuries' and prove worthless or difficult to enforce.

In any case, we are not the 'Workers' Comp Police' and we thoroughly understand the economic factors behind this election; we simply want you to make an informed decision alert to the possible consequences as well.   Contact Mitchell Insurance, Inc. to discuss your particular circumstances and use caution before seeing this as merely a money-saving opportunity.