Massachusetts Business Owners and Workers' Compensation: When Exemption Is Possible

Who May Qualify for an Exemption?

In Massachusetts, a business owner may be exempt from workers' compensation insurance if they meet two key criteria: they are the sole employee of the business, and they earn less than the minimum wage for a full‑time position. If both conditions are met, the owner is not considered an employee for insurance purposes and can opt out of coverage.

Why the Sole Employee Rule Matters

Massachusetts law distinguishes between owners who manage the business and those who are actively engaged in day‑to‑day operations. The sole‑employee rule is designed to prevent owners from exploiting the exemption while still employing others. If a business hires another person, the owner can no longer claim exemption.

Income Threshold and Its Implications

The income threshold is tied to the state's minimum wage. For 2024, the minimum wage is $15.00 per hour, translating to $31,200 for a 40‑hour week. An owner earning below this level, while being the sole employee, can apply for exemption. Earnings above the threshold require coverage regardless of employee status.

Applying for Exemption

To apply, submit a written request to the Massachusetts Department of Industrial Accidents (MDIA) or the Massachusetts Division of Occupational Safety and Health (Massachusetts OSHA). Include:

• Proof of sole employment status (e.g., payroll records, business registration)
• Documentation of annual gross income below the minimum wage threshold
• Statement that the business does not employ anyone else

The MDIA will review the application and, if approved, issue a certificate of exemption. Maintain records for at least three years, as the exemption is subject to annual review.

Potential Risks of Exemption

Exempt owners must still provide a safe workplace and comply with all occupational safety regulations. If an injury occurs, the owner may be personally liable for medical costs and lost wages. Additionally, the exemption does not protect against claims from third parties, such as customers or contractors, who may seek compensation for injuries sustained on business premises.

Re‑Insuring After Hiring Employees

Should the business hire a new employee, the owner automatically loses exemption status. The employer must then purchase workers' compensation insurance for all employees, including themselves if they take on an employee role.

Summary of Key Points

Massachusetts business owners can be exempt from workers' compensation if they are the sole employee and earn below the minimum wage. The exemption requires a formal application and ongoing compliance with safety regulations. Hiring additional staff revokes the exemption, necessitating coverage for all employees.