Voluntary Compensation
A workers comp endorsement extending statutory-like benefits to workers not legally required to be covered, such as corporate officers or sole proprietors.
What It Is
Voluntary Compensation is an endorsement to the workers compensation policy that extends workers compensation-like benefits to individuals who are not legally required to be covered under the state's workers compensation statute. This commonly includes corporate officers, sole proprietors, partners, and LLC members who have elected to exclude themselves from mandatory workers comp coverage.
When these individuals are excluded from the workers comp policy (to reduce premium), they have no coverage for work-related injuries. The voluntary compensation endorsement provides them with benefits equivalent to what they would receive under the state workers compensation statute, even though the statute does not require their coverage.
The endorsement typically costs a fraction of what full inclusion would cost because it covers only the named individuals rather than the entire workforce. It is particularly valuable for small business owners who work in the field and face the same injury risks as their employees.
Why It Matters for Brokers
Many small business owners exclude themselves from workers comp to save on premium, not realizing they are giving up all work-injury coverage. A sole proprietor roofer who falls off a ladder has no workers comp benefits and no Employers Liability protection if excluded. The voluntary compensation endorsement fills this gap at a modest cost. Brokers should proactively discuss this option with every small business client that excludes owners or officers from workers comp coverage.
Real-World Example
A masonry contractor operates as an LLC with two members who both work on job sites. To save premium, they exclude themselves from the workers comp policy, reducing annual premium by $18,000. One member falls from a scaffold and requires $220,000 in surgery and rehabilitation. Without voluntary compensation, the member has no workers comp coverage and must pay medical bills out of pocket or through personal health insurance (which may deny the claim as work-related). The broker should have recommended voluntary compensation, which would have cost approximately $2,400 per year and covered the full $220,000 in benefits.
Common Mistakes
- 1Not offering voluntary compensation to clients who exclude owners or officers from workers comp, leaving them with no work-injury coverage.
- 2Assuming personal health insurance will cover work-related injuries for excluded owners when many health policies contain workers comp exclusions.
- 3Not explaining to clients that excluding themselves from workers comp may also disqualify them from benefits if they are injured on a jobsite where they are contractually required to have coverage.
How brokerageaudit.com Handles This
Policy Checker identifies excluded officers and owners on workers comp policies and flags the availability of voluntary compensation endorsements. It generates a recommendation for the broker to discuss voluntary compensation with the client. Submission Intake captures officer and owner information including their work roles (field vs. office) to properly assess the need for voluntary compensation.