A few years back I wrote this blog discussing the benefits of workers’ compensation coverage and why nonprofit organizations should carry it. In this post, I provide a little more practical discussion of when a nonprofit must carry workers' compensation insurance in order to be in compliance with North Carolina law.
What is workers’ compensation and when does it apply?
Workers’ compensation covers employees who sustain an injury by accident or develop an occupation illness during the course and scope of their employment. Workers’ compensation pays medical and wage benefits, including disability payments to the injured worker and medical treatment for their injury or illness.
The North Carolina Workers’ Compensation Act applies to almost all workplace injuries that occur in North Carolina. Employees are covered when the injury occurs outside of North Carolina if 1) the employer’s principal place of business is in North Carolina; 2) the employment contract was made in North Carolina; or 3) the worker’s primary place of employment is in North Carolina.
What employers are required to purchase coverage?
The Workers’ Compensation Act requires all employers that employ three or more employees to either purchase workers’ compensation insurance or qualify as self-insured with the North Carolina Department of Insurance. This includes part-time and temporary workers. True independent contractors do not count as employees. A worker who is in fact an employee but is misclassified as an independent contractor, however, will count as an employee. In addition, employee misclassification will subject the employer to severe penalties.
In addition to traditional employees, corporate officers are generally treated as employees for the purposes of the Act. So, a corporation with a president, a secretary, and an employee bookkeeper is required to obtain workers’ compensation coverage. However, the Act allows the officers to opt out of coverage of themselves under the policy.
What about nonprofits?
Nonprofits are subject to the same three-employee threshold as for-profit businesses. A nonprofit that employs three or more employees must purchase workers’ compensation insurance or qualify as self-insured with the North Carolina Department of Insurance.
But there is a special rule that applies to the officers of nonprofit corporations.
"Employee" shall not include any person elected or appointed and empowered as an executive officer, director, or committee member under the charter, articles, or bylaws of a nonprofit corporation subject to Chapter 47A, 47C, 47F, 55A, or 59B of the General Statutes, or any organization exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code, who performs only voluntary service for the nonprofit corporation, provided that the person receives no remuneration for the voluntary service other than reasonable reimbursement for expenses incurred in connection with the voluntary service. When a nonprofit corporation as described herein employs one or more persons who do receive remuneration other than reasonable reimbursement for expenses, then any volunteer officers, directors, or committee members excluded from the definition of "employee" by operation of this paragraph shall be counted as employees for the sole purpose of determining the number of persons regularly employed in the same business or establishment pursuant to G.S. 97-2(1). Other than for the limited purpose of determining the number of persons regularly employed in the same business or establishment, such volunteer nonprofit officers, directors, or committee members shall not be "employees" under the Act. Nothing herein shall prohibit a nonprofit corporation as described herein from voluntarily electing to provide for workers' compensation benefits in the manner provided in G.S. 97-93 for volunteer officers, directors, or committee members excluded from the definition of "employee" by operation of this paragraph. G.S. § 97-2(2).
Therefore, for nonprofit corporations only, executive officers, directors and committee members who are unpaid volunteers are not considered employees and are not covered under the Workers’ Compensation Act. But if the nonprofit corporation has any paid employees, as well as volunteer officers, then the volunteer officers are counted solely for the purpose of determining whether the nonprofit meets the three-employee threshold under the Act.
Maybe an example will help. Assume a nonprofit corporation with two officers – a president and a treasurer – and one additional traditional employee, a bookkeeper. Ordinarily, all three would be covered under the Workers’ Compensation Act. That is, all three would receive benefits if injured, and the company would be required to purchase insurance covering all three. But since this is a nonprofit, only the bookkeeper is eligible to receive benefits if injured. The bookkeeper is covered because the two officers count as employees solely for the purpose of reaching the three-employee threshold but would not receive benefits if injured. A nonprofit organization with no paid employees is not required to purchase workers’ compensation insurance, even if it has three or more volunteer officers. Note, however, that the statute allows nonprofits to opt-in to coverage for volunteer officers.
The goal of the special rule for nonprofits is to recognize the special nature of nonprofits, including the frequent participation of uncompensated volunteer officers, while at the same time providing workers’ compensation protection to traditional employees so they are not denied workers’ compensation simply because they work for a nonprofit organization.
Workers’ compensation coverage issues can be subtle and complicated. And the consequences of not having required coverage can be significant both for the employee and the nonprofit. If you have questions, reach out to your insurance carrier or the North Carolina Industrial Commission.
Kevin Bunn is a North Carolina Workers’ Compensation Attorney. He is Board-Certified in workers’ compensation law and is the current President of the North Carolina Advocates for Justice. Kevin was also a charter employee of the North Carolina Rural Economic Development Center.
Worker's Compensation: Good for Nonprofit Employees and Employers
Workers’ compensation in North Carolina provides medical treatment and wage replacement payments for employees who become injured in an on-the-job accident or develop a job-related disease or disorder. The goal of the workers’ compensation system is to return injured employees back to work as quickly as possible. It’s an important program, especially for small nonprofits. Here are five important reasons why nonprofit organizations need workers’ comp in North Carolina:
- It prevents you from being sued by your employees and officers for injuries arising out of workplace negligence. Even office workers get hurt – often from falls and automobile accidents. Ordinarily, employers are responsible for the on-the-job negligence of their workers and officers. This includes exposure to the full range of personal injury damages (including pain and suffering), but not if the person who gets injured is a co-employee or officer covered by workers’ compensation. When an employee that is covered by workers’ compensation is injured because of the inattentiveness of a co-worker or corporate officer, the injured worker is prevented from suing the co-worker or the nonprofit by the “exclusive remedy” provision of the North Carolina Workers’ Compensation Act. The injured worker only has a workers’ compensation claim, with medical and wage replacement benefits.
- It provides quick benefits when nothing else will. Workers’ compensation wage replacement payments begin after a seven-day waiting period. And, employees can use sick leave to cover this seven days. Compare this to the 90- to 180-day waiting period for many private disability plans and the typical one- to three-year waiting period for Social Security disability and you can see the advantages of workers’ compensation. Also, a good workers’ compensation insurance adjuster is skilled at directing medical treatment towards a quick recovery, from the very first doctor visit.
- Workers’ compensation is designed to return the employee to work as soon as possible with the employer. Special nurse case managers are assigned to monitor medical treatment to ensure it is headed in the right direction. The employer where the injury occurred has the right to bring the worker back in any modified employment that fits the worker’s restrictions. After you have invested thousands of dollars and many hours in training your employees, you want a program that is designed top-to-bottom to get your worker back on the job as soon as possible.
- It’s good for your employees. The last thing an injured worker needs to worry about is how they are going to make their car payment while they are recovering. For very serious injuries, workers’ compensation can provide wage replacement benefits for almost ten years, and possibly even beyond, as well as life-long medical treatment. Would your employee’s standard health coverage terminate if they are unable to return to work?
- It’s the law. Any company with three or more employees must have workers’ compensation. Nonprofit officers are counted as employees for the purpose of determining if the three-person threshold is met. It is a mandatory program for most employers and cannot be waived, even with the employee’s consent. Nonprofits that should have workers’ compensation but do not can be subject to penalties of up to $100 per day and 100% of any workers’ compensation benefits owed. In addition, officers and board members who fail to obtain coverage when it is required can be charged with a Class H felony and be personally liable for paying for injured workers’ medical treatment and wage replacement benefits.
Kevin Bunn is a North Carolina Workers’ Compensation Attorney. He is Board-Certified in workers’ compensation law and is the current President of the North Carolina Advocates for Justice. Kevin was also a charter employee of the North Carolina Rural Economic Development Center.
