Understanding Why Many Nonprofit and Social Services Organizations Avoid Workers’ Compensation Coverage

For nonprofit companies and social service organizations, things can be a little tight when it comes to finances. With this in mind, it’s no secret that some expenses are prioritized over others, including insurance coverage.

Social services insurance programs and nonprofit coverage is available to protect these organizations in the event of an accident or claim against them during an event or service of some kind. One area of social services insurance programs that is specifically singled out is workers’ compensation insurance, which keeps those who volunteer or work for nonprofits safe in the event of a claim, such as an injury.

So, why are nonprofits and social services quick to leave this very important piece of coverage out? Here are some reasons that may help explain it.

Minimum Employee Rule

In some states, a business is not required to have workers compensation under the law if they have fewer than three employees total, and this includes officers. So, if a nonprofit is running off one person or two persons’ efforts, they are more than likely clear of having to have workers compensation. However, a business would still be required to pay workers compensation benefits no matter the size. Essentially, whether a company has this coverage or not, they’ll still be paying for it one way or another.

Exemption

There is an idea among the nonprofit community that coverage doesn’t have to be carried since they are classified under the 501c3 banner. This is also looked at as the “Good Samaritan” idea, but the fact is that most states’ laws show that if you’re an employer and you have employees or volunteers, then you will be held responsible for medical bills and disability payments.

Budgetary Priority

Workers compensation insurance is not very high on the list of expense priorities as mentioned above. A nonprofit will put items like general liability insurance first above others, especially workers compensation. While it’s not always an easy choice to make when it comes to bringing on the right coverage, it’s important to make sure employees are protected, as well as the company, in the even of a claim related to workers compensation.

Tax Classifications

Some nonprofits run fully on the work of contracted workers, or those who fill out a 1099 form instead of a regular W2. If someone works for a nonprofit or social services company and gets hurt, they will more than likely be able to request and be granted workers compensation benefits, no matter the tax status.

Companies need to be concerned when it comes to workers compensation, especially if they’re a nonprofit that pays out everyone including the executive directors to the part-time staff on a 1099 form.

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