Self-employed workers’ compensation insurance covers medical expenses and lost wages if a business owner, solopreneur, or independent contractor suffers an on-the-job injury or illness. Some agents recommend workers’ comp insurance for self-employed people to protect the person’s business if they are unable to earn an income after a work accident. Policies typically cost a minimum of $250 annually.
Rather than skipping workers’ compensation insurance, business owners and self-employed contractors may want to consider getting a policy that protects their business if they get injured at work. As a leading small business insurer, The Hartford is an excellent choice. You can get a quote and buy coverage for your business in minutes after visiting its website.
What Is Workers’ Comp Insurance for Self-employed?
Workers’ comp insurance for self-employed is a policy business owners buy in case they’re injured while performing job duties. The coverage pays lost wages and medical bills related to the injury and allows the self-employed to keep his business afloat while recuperating.
Is Workers’ Comp Insurance Required for Self-employed?
State law typically mandates that employers get workers’ compensation for their employees, but coverage is usually optional for an independent contractor or self-employed person without any staff. There are some situations where getting workers’ comp makes sense for solopreneurs, such as:
- Working in a high-risk industry: Some people face a higher probability of suffering a workplace injury. Repetitive movements, exposure to chemicals, and manual labor are a few work situations that may mean a self-employed person needs workers’ comp.
- Fulfilling state requirements: Coverage isn’t always optional for the self-employed. For example, California workers’ comp laws require roofers to have policies whether they have employees or not.
- Meeting contract obligations: Independent contractors may find that other businesses only want to work with them if they have workers’ compensation coverage because it limits the other business’ liability should the independent contractor suffer an injury while working for them.
Remember, too, that most employers need workers’ compensation. If you’re self-employed and hire staff, then you’re responsible for getting coverage for them even if you’re exempt.
Tip: Sometimes, a business owner needs to show a certificate of insurance indicating they have workers’ comp coverage even when they have no employees. This may lead the business owner to buy a ghost policy—essentially, a policy that covers business owners who can exclude themselves. A ghost policy is only a good idea if the business owner and any officers:
- Are eligible for exemption
- Have no employees and no plans to hire employees during the policy period
- Are not paying uninsured subcontractors
It may go without saying, but the business owner should also not be paying employees under the table or claiming workers are independent contractors when they aren’t. Both of these acts can mean serious fines as well as additional bills for the premium they should have been paying.
Do I Need Workers’ Compensation Insurance for Contractors?
It’s rare, but some states require business owners to carry workers’ compensation insurance for independent contractors and subcontractors. In Vermont, for example, independent contractors and business owners have to determine who is responsible for workers’ comp in writing. If they don’t, the business owner is held responsible if there’s an accident, and the independent contractor doesn’t have coverage.
Independent Contractors vs Employees
Sometimes, business owners hire independent contractors rather than employees to avoid paying for workers’ compensation. This can work, but you have to be sure you know the difference between the two. Usually, it’s a matter of how much control the business has over their work. Employees are told what to do, when to do, and to an extent, how to get it done.
Meanwhile, independent contractors:
- Provide services that are central to the business’ operations
- Determine how their work is accomplished
- Do not take part in training or evaluations
- Purchase their own equipment and supplies
- Can accept jobs from other employers
- May be paid a flat fee, rather than an hourly, weekly, or biweekly wage
These are just a few of the differences between independent contractors and employees developed by the IRS. Your state may have additional tests to help you determine your need to get workers’ compensation for your employees.
Tip: Claiming a worker is an independent contractor when they are an employee is a bad idea. Misclassifying workers can lead to you paying fines and making up for back taxes and unpaid salaries.
Where to Get Workers’ Comp Insurance for Self-employed
Every state’s workers’ compensation market is different. Some states require all business owners to go through a state-run fund while others have a competitive marketplace that also includes private carriers. The best workers’ comp insurers have expertise in your industry and policies suited for solopreneurs that adjust as your business grows.
Self-employed Workers’ Comp Insurance Carriers
Insurance Carrier | Best for |
|---|---|
Self-employed people in many industries who want pay-as-you-go workers’ compensation insurance | |
Self-employed business owners looking to hire staff for the first time | |
Artisan contractors working independently or under a general contractor | |
Independent contractors who want to compare policies from top-rated carriers | |
Microbusinesses in high-risk industries were owners need claims handled quickly |
*Liberty Mutual quote provided by our partner Commercialinsurance.NET.
The Hartford
One of the largest providers for commercial insurers in the nation, The Hartford is the best choice for self-employed individuals who need coverage but are concerned about costs. The company offers a pay-as-you-go plan that charges a premium based on your actual monthly payroll as opposed to an estimate for the year. Solopreneurs who chose this option pay a more accurate premium.
Employers
Employers is an excellent option for self-employed people looking to expand their businesses and hire workers. The company specializes in small business workers’ compensation insurance and offers a wide range of services to help new businesses develop safety procedures that can help them control costs. Programs include hazard analysis and employee safety training as well as guidance on developing a return-to-work program.
State Farm
State Farm has been a leader in property and casualty insurance for more than 95 years and is the right choice for solo artisan contractors who are concerned about not having coverage through general contractors. Licensed plumbers, carpenters, and electricians can find excellent pricing for self-employed workers’ comp insurance with State Farm.
CoverWallet
CoverWallet is a top small business insurance broker that strives to make things easier for the solopreneurs by offering a simple online application that transmits their business information to multiple top-rated carriers. The application takes about 5 minutes to complete, and quotes for eligible businesses appear in less than a minute. This makes it simple for you to compare offers and pick the appropriate policy for your work.
Liberty Mutual
Liberty Mutual* prides itself on claims processing for workers’ compensation, pointing to a five-year analysis showing it closes claims 18% faster and at an 11% lower cost than its competitors. Additionally, the company can write workers’ comp insurance for self-employed people with very few staff. This makes Liberty Mutual an excellent option for microbusinesses in high-risk industries like manufacturing and construction.
*Liberty Mutual quote provided by our partner Commercialinsurance.net.
Workers’ Comp Insurance Costs for Self-employed
Self-employed workers’ compensation costs are based on your state, annual payroll, claims history, and job classifications. Job classifications represent the risks involved in your daily tasks. Each classification gets a base rate, typically assigned by a rating bureau like the National Council on Compensation Insurance (NCCI).
Sample Self-employed Workers’ Comp Rates by Class Code and State
Class Code | California | Texas | Virginia |
|---|---|---|---|
0042 Landscaper | $6.42 | $2.29 | $4.10 |
5474 Painting Contractor | $8.83 | $1.42 | $3.80 |
9079 Mobile Food Truck | $3.17 | 58 cents | 98 cents |
8810 Clerical - Office Work | 28 cents | 7 cents | 8 cents |
5552 Roofing Contractor | $23.06 | $5.40 | $12.01 |
The table above shows just how much self-employed workers’ comp costs can vary by state and class code. A worker doing clerical work faces little risk, so the premium is notably lower than the more physically demanding jobs listed on the chart. Yet, the rate can also vary significantly based on the worker’s state.
However, the base rate is only the beginning of your costs. It needs to be multiplied by two other numbers:
- Total payroll: If your classification rate is $1.25 per $100 and your payroll is $50,000, your premium is $625.
- Experience modification rate (EMR): Your experience modifier, or e-mod, is a number that represents your claims history. More claims raise your e-mod that, in turn, increases your premium.
The resulting rate is often called your manual rate—the one insurers quote before they account for fees, taxes, surcharges, and discounts. Additionally, insurers often charge minimum premiums for workers’ comp, even for a self-employed individual with no employees. All of this, plus the fact that each carrier has its own way of evaluating your claims history, means quotes can vary greatly from insurer to insurer and makes comparison shopping key to keeping workers’ comp costs down.
How Job Classifications Work for Independent Contractors
Most states use the job classifications created by the NCCI that look at the actual job duties of the worker. For self-employed individuals, this means their job classification usually is based on their fundamental duties and not on any additional work they may do as a business owner like bookkeeping, sales, or marketing.
However, let’s say a self-employed landscaper hires a clerk to assist with appointment setting, bookkeeping, and invoicing. The clerk is classified as an office worker, class code 8810, not as a landscaper, class code 0042. As a result, the landscaper pays less for the clerk’s workers’ comp than he does for his own. His premium, however, is a combination of the two.
How to Opt Out of Self-employed Workers’ Comp
For the most part, self-employed business owners don’t need workers’ compensation coverage for themselves. However, some states require self-employed people to file a waiver with the workers’ compensation board indicating they’re opting out.
Another situation where independent contractors may need workers’ comp waivers is when they‘re providing services to another business. In states where the business owner is responsible for providing workers’ comp for an independent contractor, the business owner can sometimes ask the independent contractor to waive the requirement. Usually, this requires filing paperwork with the state board too. Every state is different, so check with your state’s governing entity for specifics.
Frequently Asked Questions (FAQs) About Self-employed Workers’ Comp
Workers’ compensation for self-employed individuals is an optional but often recommended coverage. Just because you are the owner of the company doesn’t mean you aren’t susceptible to injury. Buying a policy provides you medical and partial wage coverage if you aren’t able to work after an injury.
Do I need self-employed workers’ compensation if I have health insurance?
Self-employed contractors often assume health insurance covers occupational injuries and illnesses, but that is not the case. Most health policies don’t pay for work-related events. Even if they did, health insurance can have deductibles of up to $12,000, an amount many small business owners might find insurmountable—especially if their injuries keep them from earning money.
Why did I get a year-end workers’ comp insurance bill?
Workers’ compensation insurance premiums are based on payroll estimates for the year. An employer may not know the exact number of hours someone works, or they may hire or fire people in the middle of the policy term, so when the policy expires, insurers conduct an workers’ comp audit to see if the premium was calculated correctly. If your payroll was higher than estimated, you get a bill for the difference. If they were less than estimated, you would receive a refund.
Am I covered for workers’ compensation by my general contractor?
On small projects, general contractors may cover independent contractors, or they may require independent contractors to provide their own workers’ comp. Contractors on larger projects may have a contractor-controlled insurance program (CCIP) that provides workers’ compensation as well as general liability coverage for people associated with the project.
Check with your local labor regulatory board to determine if you meet the classification of an independent contractor. If not, your employer should have workers’ compensation coverage for you.
Will preexisting conditions prevent me from getting self-employed workers’ comp?
Preexisting conditions do not prevent employers from obtaining workers’ compensation insurance for themselves or their employees. Policies only pay for new injuries and illnesses or flare-ups resulting from existing work. A carpenter with a back problem that wasn’t caused by his job may still receive benefits if he falls off a ladder and reinjures his back.
Does a single-member LLC need workers’ compensation insurance?
As with all things workers’ comp, whether or not a single-member limited liability company (LLC) needs a policy depends on state law. LLC members are often exempt from requirements but, even then, they may need to notify the state that they’ve opted out. Your best option is to contact your state’s workers’ compensation board to find out what your requirements are.
Bottom Line
Sole proprietors and independent contractors shouldn’t skip workers’ compensation insurance for self-employed individuals. Coverage may not make sense for every solopreneur, but those with a risk for injury that could lead to a loss of income may want a policy.
Get the protection you deserve with an insurance carrier that understands the unique needs of a self-employed business owner. The Hartford covers small businesses for liability, business property, and workers’ compensation. Get a workers’ comp insurance quote from The Hartford today and have coverage before you start your workday tomorrow.
