Most Minnesota business owners do not need to file anything to be exempt from workers’ compensation — the exemption is automatic under state law. A Minnesota workers’ compensation exemption form is only required in one situation: when a qualifying corporation or LLC wants to exclude extended relatives (beyond a spouse, parent, or child) of an owner from coverage. In that case, corporations file Form SF0138 and LLCs file Form SF0137 with the Minnesota Department of Labor and Industry.1Minnesota Department of Labor and Industry. Work Comp: Forms
Who Is Already Exempt Without Filing
Minnesota Statutes Section 176.041 excludes several categories of workers from mandatory coverage by operation of law. If you fall into one of these categories, no form is needed to confirm your status.2Minnesota Office of the Revisor of Statutes. Minnesota Code 176.041 – Excluded Employments; Application, Exceptions, Election of Coverage
- Sole proprietors, along with the sole proprietor’s spouse, parent, and children of any age.
- Partners in a business or farm operation, along with the partner’s spouse, parent, and children of any age.
- Executive officers of closely held corporations who own at least 25 percent of the stock, if the corporation had fewer than 22,880 payroll hours the prior calendar year. Their spouse, parent, and children are also excluded.
- LLC managers who own at least 25 percent membership interest in an LLC with ten or fewer members, again if the LLC had fewer than 22,880 payroll hours the prior year. Their spouse, parent, and children are also excluded.
- Persons employed by a family farm as defined in the statute, and certain relatives of executive officers of family farm corporations.
If your business exceeded 22,880 payroll hours in the previous calendar year, the executive officer and LLC manager exemptions do not apply, and you must carry coverage for those individuals.2Minnesota Office of the Revisor of Statutes. Minnesota Code 176.041 – Excluded Employments; Application, Exceptions, Election of Coverage
When You Actually Need Form SF0138 or SF0137
The automatic exemption stops at immediate family. If your closely held corporation or LLC also employs extended relatives of a qualifying owner — siblings, grandparents, grandchildren, aunts, uncles, nieces, or nephews — those relatives are not excluded unless you file the correct form. The exclusion is not effective until the form is on file with DLI.3Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Executive Officers of a Closely Held Corporation
- Corporations use SF0138, Election to Exclude Certain Relatives of Executive Officers of a Closely Held Corporation.3Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Executive Officers of a Closely Held Corporation
- LLCs use SF0137, Election to Exclude Certain Relatives of Managers of a Limited Liability Company.4Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Managers of a Limited Liability Company
Both forms reach only to relatives within the third degree of kindred. Before filling out either form, confirm three eligibility requirements:
- Stock or membership is owned by ten or fewer persons.
- The business had fewer than 22,880 hours of payroll in the preceding calendar year.
- The entity is currently registered as active with the Minnesota Secretary of State.
If any answer is no, you cannot exclude extended relatives and must cover them under your workers’ compensation policy.3Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Executive Officers of a Closely Held Corporation
Completing the Form
SF0138 and SF0137 follow the same layout. Gather this information before you start.
Section 1 asks for the business’s legal name exactly as registered with the Minnesota Secretary of State, plus the mailing address and phone number. A name that doesn’t match the Secretary of State’s records will cause a processing issue.3Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Executive Officers of a Closely Held Corporation
Section 2 contains the three eligibility questions above. If you cannot answer yes to all three, stop.
Section 3 asks for the names of all executive officers (SF0138) or managers (SF0137) who own at least 25 percent of the stock or membership interest, along with each person’s title and exact ownership percentage. This is how DLI verifies the ownership threshold.3Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Executive Officers of a Closely Held Corporation
Section 4 lists the relatives being excluded. For each, provide the relative’s name, their relationship to the qualifying officer or manager, and the name of the officer or manager they’re related to.
The form must be signed and dated by an executive officer or manager of the business. Not by an accountant, an attorney, or another third party. The signer certifies the information is complete and accurate and that they have authority to act for the entity.3Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Executive Officers of a Closely Held Corporation
Where to Send It and When It Takes Effect
Download the current PDF from DLI’s workers’ compensation forms page and submit the completed form to the Minnesota Department of Labor and Industry.1Minnesota Department of Labor and Industry. Work Comp: Forms For questions about filing or status, contact the Work Comp Help Desk at 651-284-5005 (press 3), toll-free 800-342-5354, or helpdesk.dli@state.mn.us.
Send a copy of the form to your workers’ compensation insurance company as well. If you switch insurers later, send a copy to the new carrier.4Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Managers of a Limited Liability Company
The exclusion’s effective date is the date DLI receives the form, not the date you sign it. Mailing takes time; the exclusion is not retroactive and does not apply to any period before the form arrives.4Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Managers of a Limited Liability Company
Keeping the Form Current
If anything on a filed form changes, refile it with both DLI and your insurer. Examples include a listed officer’s ownership dropping below 25 percent, a different relative starting work at the company, or a change in officers or managers. A stale form could leave the business liable for workers’ compensation benefits if an excluded relative is injured on the job.4Minnesota Department of Labor and Industry. Election to Exclude Certain Relatives of Managers of a Limited Liability Company
Electing Into Coverage Instead
An exempt owner who wants workers’ compensation protection can voluntarily elect into coverage. This goes through your insurer, not DLI. Send written notice directly to the workers’ compensation carrier; coverage begins the day after the insurer receives the notice, or on a later date you specify. The insurer endorses the policy with the names of the people electing coverage, and the election stays in effect as long as that insurer’s policy or its renewal remains active.2Minnesota Office of the Revisor of Statutes. Minnesota Code 176.041 – Excluded Employments; Application, Exceptions, Election of Coverage
Ending elected coverage works the same way: written notice to the insurer, effective the day after receipt.
Penalties for Claiming an Exemption You Don’t Qualify For
If DLI determines that workers who should have been covered were not insured, the employer can be ordered to pay a penalty of up to $1,000 per employee per week for the entire period the employee lacked coverage.5Minnesota Department of Labor and Industry. Work Comp: Fines and Penalties for Employers’ Failure to Insure DLI can also order the employer to buy the required insurance and to stop employing anyone without coverage in place.6Minnesota Department of Labor and Industry. Workers’ Compensation Insurance Coverage: General Information
The usual cause is misclassifying workers — assuming someone is a partner, an excluded relative, or an independent contractor when the state considers them an employee. When there’s doubt, cover the worker and call DLI’s Help Desk to confirm before relying on an exemption.