Corporate structure can affect Workers' Compensation costs
Why your CPA should talk to your CWCA
When determining or changing the structure of a business, there are many considerations including organizational costs, limited versus unlimited liability, continuity of the business, transferability of ownership, and management control, but income taxes often are a key consideration. It should not be overlooked that, in some cases, the decision will impact Workers' Compensation premiums.
For example, while laws vary by state, there are special payroll considerations for Sole Proprietors, Partners, LLC Members and Executive Officers. Owners may benefit from a Subchapter S designation where the payout of profits is not considered payroll. Dividing a company into several LLCs could impact the governing classification codes on an employer's Workers' Compensation insurance policy. When separate audits must be done for each named insured, a governing classification code, the class that generates the most payroll aside from standard exception classifications such as clerical or outside sales, will be determined for each entity. This could mean a substantially higher Workers' Comp premium.
The issues are complex and the relevant laws should be examined to avoid unpleasant surprises.