Understanding Tennessee Workers' Compensation Exemptions and Their Cost

What is the Tennessee workers' compensation exemption?

The state of Tennessee allows certain employers to be exempt from purchasing workers' compensation insurance if they meet specific criteria, primarily based on the number of employees and the type of work performed. This exemption can save businesses the full premium cost, but they must still meet the legal requirements to qualify.

Cost of the exemption

There is no direct fee to obtain the exemption itself; instead, the cost is reflected in the absence of the regular workers' compensation premium. For a typical small business in Tennessee, annual premiums range from $0.30 to $0.70 per $100 of payroll, depending on the industry risk classification. If a business qualifies for the exemption, it avoids paying this amount entirely.

Eligibility criteria

To claim the exemption, an employer must satisfy at least one of the following conditions:

• Employ fewer than three full‑time employees (or fewer than five part‑time employees) and have no employees working in hazardous occupations.
• Operate a sole proprietorship or partnership where the owner(s) do not have any employees.
• Engage in a low‑risk industry as defined by the Tennessee Department of Labor and Workforce Development, such as certain clerical or administrative roles.

Employers who do not meet these thresholds must obtain workers' compensation coverage either through a private insurer or the state's self‑insurance program.

Application process

Qualified businesses file a Workers' Compensation Exemption Form (Form WC‑E) with the Tennessee Department of Labor. The form requires basic company information, payroll data, and a declaration that the business meets the exemption criteria. Once submitted, the department reviews the application and, if approved, issues an exemption certificate valid for one year.

Consequences of non‑compliance

Operating without required workers' compensation coverage when not exempt can result in penalties ranging from $500 to $5,000 per employee, plus possible civil lawsuits for injuries. The state also imposes a $500 civil penalty for each day the violation continues after notice.

Comparison of exemption vs. regular coverage