Running a business with multiple entities can create complexity when it comes to workers compensation coverage. Many business owners don’t realize that their corporate structure directly impacts their insurance policy requirements – and getting it wrong can lead to costly audit problems and potential claims issues. Understanding which entities need coverage and how to structure your policy correctly is essential for protecting your business and ensuring compliance.
In this video, Tina Austin, CIPA and Premium Consultant Supervisor at MEM, shares some of the top mistakes she sees when it comes to structuring work comp policies with multiple entities.
The critical entity problem most business owners miss
The most common mistake in multi-entity work comp involves misunderstanding which entity actually pays the employees. This confusion can create serious coverage gaps.
Austin shared the following example: “If there’s a travel agency that’s paying all the employees for both that travel agency and a related business, a construction company, then the travel agency needs to be the primary named insured on the policy.”
Businesses sometimes fail to identify which entity pays the payroll. In this example, if the travel agency pays employees who work for both the travel business and the construction company, then the travel agency must be the primary named insured on the work comp policy. This ensures that all employees are covered regardless of which business they’re working for on any given day.
Why entity structure matters for work comp
The entity structure isn’t just a paperwork detail. It’s fundamental to how your work comp policy functions.
When entities that pay payroll aren’t properly included on the policy, several problems can emerge:
- Audit complications: Payroll from uncovered entities can’t be included during the audit process
- Claims vulnerabilities: Employees of uncovered entities may not have proper protection
- Compliance issues: The policy structure may not align with your actual business operations
➡️ The bottom line: The entity that pays employees must be covered under the work comp policy. This ensures that all payroll can be properly accounted for and all employees have the protection they deserve.
Understanding payroll responsibility and policy structure
Getting the policy structure right starts with identifying which entity actually pays your employees and handles employment tax responsibilities.
The primary named insured rule
In most cases, the entity that pays the employees should be the primary named insured on the policy. Typically, this is the entity that files federal tax forms and maintains the employment records that auditors need to verify coverage and calculate premiums.
“In most cases,” explained Austin, “the entity that pays the employees, also files the federal tax forms, and that entity is the one that needs to be included on the MEM policy or any work comp policy.”
Federal tax forms tell the story
Your federal tax filings provide the clearest evidence of which entity should be covered under your work comp policy. These forms remove guesswork by showing legal entity names and FEIN numbers:
| Form | Purpose | What it shows |
| 941 | Quarterly Employment Tax Returns | Entity paying employees and withholding taxes |
| 940 | Annual Unemployment Tax | Federal unemployment tax responsibility |
| 943 | Agricultural Employment Tax | Agricultural employer responsibilities |
| W-3 | Summary of W-2 Forms | Legal employer entity and FEIN number |
Common entity mistakes that create coverage gaps
Business owners sometimes make these critical errors when dealing with multiple entities:
- Assuming multiple entities need multiple policies: When one entity pays all payroll, a single properly structured policy can provide comprehensive coverage
- Failing to update policies after reorganization: If you change which entity handles payroll responsibilities, your work comp policy needs immediate updates
- Not communicating entity relationships to agents: Incomplete information leads to improper policy structure
How MEM handles complex entity structures
MEM has specialized expertise to help businesses navigate complex entity structures and ensure proper work comp coverage.
The ERM 14 form: Documenting your business structure
MEM uses a form called the ERM 14 to document complex business structures and ensure that all relevant entities are properly reflected in the policy. This form allows businesses to clearly communicate their entity relationships and payroll responsibilities to MEM underwriters.
The ERM 14 form captures the details that standard applications might miss, helping prevent the coverage gaps that can happen when entity structures are misunderstood or incorrectly documented.
Working with MEM underwriters for proper policy setup
Our underwriters specialize in understanding complex business structures. To help them structure your policy correctly:
- Provide complete information about which entities pay payroll
- Share entity relationship details and organizational charts
- Communicate any recent business structure changes
- Be transparent about your operations across all entities
The more information you provide about entity relationships and payroll responsibilities, the better MEM underwriters can tailor your policy to your specific situation.
MEM premium consultants: Support beyond audits
“MEM premium consultants are highly trained professionals,” explained Austin. “They can be a lot of assistance throughout the policy period, not just at audit time. They can advise you on how to keep records. They can advise you on what entities are on the policy that you may need to go back to that MEM underwriter and make changes. Our premium consultants are happy to help.”
If you discover that your current policy doesn’t properly reflect your entity structure, our Premium Consultation team can help you make the necessary adjustments. Early consultation can prevent audit complications and ensure that your coverage stays aligned with your operations.
📍 Get prepared: Download MEM’s Audit Preparation Checklist to make sure your records are audit-ready.
3 best practices for multi-entity businesses
Following these best practices can help prevent entity structure problems and ensure your work comp coverage remains accurate and comprehensive.
1. Keep detailed records
Maintain clear documentation to support proper policy structure:
- Track which entity pays each employee clearly in your payroll records
- Align payroll records with federal tax filings to avoid discrepancies
- Implement systems that document employee assignments across entities
- Keep records of entity relationships and organizational changes
This documentation becomes invaluable during audits and helps ensure that your policy structure remains accurate as your business evolves.
2. Communicate openly with your insurance agent
Your insurance agent needs complete information about your entity structure to properly advise you on coverage options:
- Provide clear documentation of entity relationships and payroll responsibilities
- Don’t assume your agent understands your business structure without explanation
- Communicate business changes immediately when you add entities or reorganize
- Schedule regular check-ins to discuss structural changes and coverage needs
3. Schedule regular policy reviews
Schedule regular reviews of your work comp policy to ensure that it continues to reflect your current business structure. As businesses grow and evolve, entity structures can change, and your insurance coverage needs to keep pace with these developments.
Get your entity structure squared away before your audit
Proper entity structure is fundamental to effective work comp coverage. When multiple entities are involved, understanding which entity pays payroll and making sure it’s the primary named insured can prevent audit issues and potential claims complications.
The key is working with experienced professionals who understand the complexities of multi-entity businesses. MEM’s premium consultants have decades of experience navigating these challenges and are here to help.
➡️ Need expert guidance on your multi-entity structure?
Policyholders can reach out to our Premium Consultation team anytime at premiumconsult@mem-ins.com for specialized help with multi-entity work comp structures.