As a small business owner, you may hire a crew to help you manage your work. Whether you’re a carpenter with a full-time apprentice or a face painter who hires an independent contractor to help out at festivals, you may be wondering, do I need workers compensation insurance?
The short answer is, it depends. The long answer? As a small business owner, it’s important to understand the ins and outs of workers compensation insurance and how it applies to your business. Thus, we’ll break the question in two:
Below, we’ll answer is workers’ comp required? Additionally, we’ll break down this specific insurance so you know how to best protect your small business and its employees.
Workers’ compensation is a kind of insurance policy that can protect against liability if your employee or independent contractor is injured on the job. Thus, it provides two kinds of protection:
Across 49 states (save for Texas), most small and mid-sized businesses are legally required to hold workers’ comp insurance if they have a single employee. However, depending on the size of your small business, its legal designation, and other factors, you may be exempt from state requirements.
There are no federal regulations regarding workers’ compensation. That means that each state has unique workers’ comp employer obligations, especially when it comes to small businesses. There are at least five factors that can affect whether or not your business is required to hold workers’ compensation:
Be sure to check with the National Federation of Independent Businesses to understand the laws in your state.
Now you’ve checked your state requirements. If you’re not required to have workers’ compensation, it’s time to move on to the second part of the question we started with: Do I need workers compensation to protect my business from risk?
Let’s imagine a scenario like the following.
You’re a party planner who hires an assistant. You pay them on a 1099, as an independent contractor with a set monthly stipend. You also directly manage and oversee their work. Your assistant then gets injured at a particularly raucous party, and sues you for the cost of their rehabilitation.
In this case, even though the IRS believes this employee is an independent contractor, your state may determine at trial that they’re actually an employee. Now, you’re responsible for their medical costs, your own legal fees, and a fine from your state for failing to provide workers’ comp.
In this case, the small business owner wasn’t required to have workers’ compensation—but they may wish they had it. If you hire employees or independent contractors, even for a day or weekend-long event, workers’ comp can help protect you in situations like the following:
As you can see, in situations like the above, you could be held liable for your employees’ injury. If you don’t have workers’ compensation, you could find yourself responsible for medical costs, legal fees, and even fines.
No. As a small business owner, you may already have the following kinds of policies:
However, your employees are not clients or third parties. Therefore, their injuries are not covered by general liability insurance. Likewise, professional liability insurance can protect you from errors in your work with clients, but not your failure to insure your employees.
As a small business owner, you know that costly medical claims or legal fees could threaten your business before it’s really taken off. In order to make sure your business can keep growing and thriving, take every precaution to protect yourself from risk—even if it’s not legally required in your state.
Essential business insurance policies include:
After all, insurance may have a monthly cost, but knowing you’re protected from risk is invaluable.
As a small business owner, you’re a leader in your community and for your company. Being a leader means staying informed of state and local regulations, as well as taking the extra step to protect your company and crew.
Here at Thimble, we’re invested in taking the extra step, too. That’s why we’ve created insurance for the 21st century. Get general liability insurance and professional liability insurance policies by the hour, day, or month and protect your business when you need it.
With a professional liability, general liability, and workers’ compensation policy, you can make sure you’re covered in the case of third-party, client, and employee claims. That’s 360° insurance that goes well beyond the bare minimum to protect your business’ present and future.
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Our editorial content is intended for informational purposes only and is not written by a licensed insurance agent. Terms and conditions for rate and coverage may vary by class of business and state.
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