If you’re a sole proprietor, independent contractor or other self employed individual, getting workers’ compensation insurance probably isn’t very high on your to-do list. After all, it’s meant to protect employees who get hurt on the job (and in turn, protect employers from financial liability). Why would someone with zero employees shell out hard-earned capital for workers’ comp insurance?
Depending on what you do and where you run your business, getting workers’ compensation insurance might be a smart idea. In fact, it might actually be required. As a self-employed go-getter, it’s up to you to determine if the benefits outweigh the costs. In this article, we’ll go over some reasons you might want to purchase coverage for yourself.
What is workers’ compensation insurance?
Workers’ comp is a type of insurance designed to provide employees with financial relief in the event they suffer a work-related injury or illness. It covers medical expenses like emergency room visits, prescription costs and even long-term care like physical therapy. For employees who miss work while recovering, workers’ comp can also cover a portion of the employee’s lost wages. In extreme circumstances, workers’ comp provides death benefits to a workers’ beneficiaries should they pass away in a work-related incident.
Workers’ compensation insurance does more than just protect employees. It protects employers, too. Without workers’ comp, an employer would be liable for an injured employee’s hospital bills, rehabilitation and lost wages if the injury or illness is a result of their work. By paying premiums for a workers’ comp policy, companies avoid the risk of having to pay much larger sums of money after an accident. And since workers’ comp is required nearly everywhere in the U.S., having coverage means avoiding fines, penalties or even criminal charges.
Do I have to get workers’ comp if I’m self-employed?
In most states, you’re not required to purchase workers’ comp if you’re a sole proprietor, independent contractor or otherwise self employed. Even if you don’t have employees, you still are one—you just work for yourself. That means you have the option of getting your own workers’ comp policy. While not every sole proprietor should consider getting their own policy, there are some reasons you might want to do so:
You work in a high-risk industry
Not every entrepreneur works from the comfort of their home office. If your work demands a lot of physical activity or puts you in close proximity to dangerous materials or substances, getting sick or injured could be a real possibility. A single incident could set you back thousands of dollars. Hospital visits in the U.S. average $2,607 per day. If you’re unable to work for a period of time, you’ll also miss out on much-needed income.
It’s required in your state
Most states don’t require independent contractors to secure self-coverage. But some states have specific requirements for self employed individuals who perform certain kinds of work. For example, roofers in California are required to purchase workers’ compensation insurance even if they don’t have any employees. It’s always a good idea to check with your state’s Department of Labor or Board of Workers’ Compensation to see if you need coverage.
You need it to secure clients
If you’re an independent contractor and do work for other businesses, having workers’ compensation insurance may mean the difference between landing a contract or getting passed over. Many states have strict guidelines on the differences between independent contractors and employees (sometimes known as “employee until proven otherwise”). For this reason, some clients may require their 1099 employees to obtain coverage to mitigate risk.
Do I need workers’ comp if I have 1099 employees?
Every state has different requirements. As noted above, some states will consider a 1099 independent contractor an employee. This could happen if they work a certain amount of hours, work under the direction of a supervisor at your company, or perform the same work an employee of the company would. Other states require you to provide coverage for 1099 employees regardless of what kind of work they’re performing.
How do I get workers’ compensation if I’m self employed?
Getting a workers’ comp policy as a self-employed individual can be difficult. Many insurance providers shy away from sole proprietors and independent contractors, since the cost of insuring a single person isn’t worth the lower premium. Your best bet is to shop around with commercial providers who are licensed in your state. If you can’t find a suitable provider, check to see if your state has a state-funded Workers’ Compensation Fund.
The bottom line
Workplace incidents can happen to anyone, whether they’re an employee of a large corporation or a self-employed handyperson. While some occupations are inherently more risky or dangerous than others, there isn’t a single job in existence that is completely risk-free. A single misstep or miscommunication can easily lead to an ambulance ride, emergency room visit and weeks of physical therapy and lost wages.
Workers’ compensation exists to provide working individuals with a financial safety net. As a self-employed worker, you may not have even considered workers’ comp as a realistic option. The fact is, the price of workers’ compensation insurance is often a fraction of the cost of even a moderate injury. Getting coverage means knowing you and your business are protected, so you can focus on what matters.