A frequent question that most businesses will face is whether and/or when is the business required to purchase workers’ compensation insurance. The short answer is that all businesses having three or more employees are required to obtain workers’ compensation insurance. Insurance is required regardless of whether the employees are full time, part time, seasonal, family and minors or aliens, legally or illegally employed. A more difficult question is what constitutes an employee when counting toward the three employee threshold.

N.C. Gen. Stat. § 97-2(2) defines an employee. The definition includes officers of a corporation who are automatically counted as employees in determining whether the business has three or more employees. In a corporation where the husband is the president and the wife is the secretary, if they hire one employee, then the law will deem there are three employees and the corporation will be required to maintain workers’ compensation insurance. The officers may elect to exempt themselves from the coverage, but the corporation will still have to maintain the coverage for the one employee. In sole proprietorships, partnerships and limited liability companies, the owner, partner or member is not counted as an employee. The owner, partner or member may elect to include themselves on the entity’s workers’ compensation insurance policy.

Failure to obtain and maintain the legally required insurance coverage can be expensive and legally frightening. If a covered employee is injured, and the required insurance coverage is not in place, you as the employer will be responsible for all medical expenses and compensation benefits required to be paid by law. In addition, you can be subject to both civil and criminal penalties for failing to have the required insurance coverage. N.C. Gen. Stat. 97-94.

An important and interesting issue that is currently trending in community association legal circles is whether North Carolina law requires community associations to maintain worker’s compensation insurance.

The issue surfaced following a column published in the Charlotte Observer in which another law firm concluded that North Carolina’s Workers’ Compensation Act, read closely, appears to require community associations – such as homeowners associations (HOAs), condominiums and townhomes – to maintain workers’ compensation insurance. This conclusion turns on the Act’s definition of “employee”, which states: “Every executive officer elected or appointed and empowered in accordance with the charter and bylaws of a corporation shall be considered as an employee of such corporation….” Because most community associations are formed as non-profit corporations, this language could be fairly read as covering community associations with executive boards with three or more members, which is essentially all of them.

Understandably, the article prompted property managers and associations to contact their attorneys, including our firm, to determine whether they need workers’ compensation insurance. It also prompted an informed blog post from another North Carolina attorney who served as the President of College of Community Association Lawyers in 2014.

The blog post, while acknowledging the problem posed to HOAs and condominiums by the Act’s current definition of “employee”, notes that the “general consensus” among workers’ compensation attorneys and insurance agents is that the Charlotte Observer article “made an issue explode that likely didn’t need exploding” because 2015 could see proposed legislation to address the concern of nonprofit corporations being vulnerable to “employee misclassification”, and because the Industrial Commission, which administers the Workers’ Compensation Act, has never been known to police this issue among non-profit corporations and appears unlikely to start now.

Based on this consensus, the blog reasons that the better question is “should” community associations maintain workers’ compensation insurance, which is a question that every board should consider but which ultimately must be determined on a case-by-case basis. Importantly, though, the blog suggests that those associations that decide to purchase workers’ compensation may find it difficult to find a ready-made, cost-effective coverage.

If you would like to discuss whether workers’ compensation is right or necessary for your association, please do not hesitate to contact us.