Workers’ Comp Insurance for Self-employed Individuals: The Need, Cost & Carriers

Workers’ compensation insurance, while not required, is a good idea for the self-employed. Solopreneurs face the chance of injury that can result in medical expenses and loss of income. Workers’ compensation insurance for self-employed covers these expenses. Solopreneurs can expect to pay at least $250 per year for self-employed workers’ compensation insurance.

Rather than waive rights for work-injury coverage, self-employed contractors can obtain workers’ compensation insurance to protect their business should they get injured at work. In a few minutes after visiting The Hartford, you can obtain a quote and bind coverage for your business pursuits.

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How Workers’ Comp Insurance for Self-employed People Works

Workers’ comp insurance for self-employed individuals covers a solopreneur, independent contractor, or a business owner who is injured while performing job duties. The insured individual receives compensation for lost wages and medical payments related to the injury so long as premiums are paid. This is optional coverage but highly recommended to protect a solopreneur’s financial interests.

Many self-employed contractors assume health insurance is enough should they suffer an injury that keeps them from working. However, most independently obtained health policies have deductibles up to $12,000, and small business owners can find this amount insurmountable—especially when injuries keep them from earning money. Even if the solopreneur has disability insurance, which many elect not to get, these policies often have waiting periods before coverage kicks in, and it is only a percentage of income.

Establishing Self-employed Insurance for Workers’ Compensation

Every state’s workers’ compensation market is different; some only have a state fund, others use private carriers, and still others have a mixture of the two. A workers’ comp insurance provider can help you determine your options. Provide your annual payroll, including yourself. If you don’t pay yourself through a standard payroll system, you will be charged a minimum premium based on minimal payroll thresholds.

Who Workers’ Comp Insurance for Self-employed Is Right For

Solopreneurs might not be able to prevent getting hurt on the job, but workers’ compensation can prevent them from going bankrupt because of that injury. Medical expenses, lost wages, and the inability to seek future work often lead to financial disaster. Getting self-employed workers’ comp prevents this and establishes coverage if the owner hires someone.

Self-employed workers’ comp insurance is ideal for business owners who:

• Are concerned about the possibility of losing income after an injury
• Need to have a certificate of insurance for subcontracting work
• May hire an employee in the future and wants to be protected “just in case”

While most employers need workers compensation, they often view it as an expensive requirement. The reality is as a self-employed individual, your risk is much higher if you are out of work for any extended period due to injury. There may be no one else in the company to offset your duties to generate revenue, and medical expenses are often extensive.

General Contractors and Self-employed Workers’ Comp Insurance

Many general contractors don’t keep a full-time staff and only hire subcontractors for specific contract needs. There are two ways that general contractors protect themselves against workers’ compensation claims: buy coverage or demand proof of insurance from subcontractors.

General contractors have to confirm whether workers do or don’t have coverage based on state laws, which vary widely. A sole proprietor or general contractor who occasionally hires help needs workers’ comp insurance as well.

For large development projects, general contractors often obtain a contractor controlled insurance program (CCIP) that covers all subcontractors on the job to ensure there are no gaps in coverage. Most smaller projects are managed by requesting a certificate of insurance from subcontractors with the general contractor and maybe even the client named as an additional insured.

The IRS has also cracked down on the use of independent contractors, auditing more sole proprietors who claim they only use independent contractors. Many self-employed people claim to exclusively hire independent contractors because they don’t want to deal with payroll, taxes, and insurance. If you are self-employed and have employees, confirm they are truly independent contractors to avoid IRS penalties.

Workers’ Comp Insurance for Self-employed Costs

Workers’ compensation costs are contingent upon your state, annual payroll, claims history, and workers’ job classifications. Classifications represent job risks and determine the base price of self-employed workers’ comp. That simply means your workers’ comp could cost 85 cents per $100 of payroll if you’re an office worker but $7.50 per $100 if you’re a contractor.

Insurers often charge minimum premiums for workers’ comp, even for a self-employed individual with no employees. Minimums are typically contingent on the industry and state rates.

Base Rates Vary for Workers’ Comp for Self-employed by Industry*

*Rates based on Virginia and Alaska baseline estimates.

The table shows that self-employed workers’ comp costs vary widely by state. A self-employed landscaper in Tennessee making $60,000 annually could pay $2,500 annually for her workers’ comp insurance. A solar sales representative going door to door in the same area could pay as little $200 annually.

Workers’ compensation premiums for self-employed individuals are based on:

• Job classification: Determine how risky the work is. A bookkeeper has a lower risk classification than a mechanic.
• Total payroll: Premium is calculated by multiplying a rate assigned to the job classification by every $100 of payroll. If the classification rate is $1.25 per $100 and the payroll is $50,000, the premium is $625.
• Claims history: An experience modification rate (EMR) is a multiplier based on company claims history and industry averages.

Whether you’re getting workers’ comp for you or only your employees, all job classifications are on primary job functions. This means a customer service representative is classified at one risk level and a roofer at another. However, if a self-employed roofer adds a sales representative, that person is added to the workers’ comp policy for his own job duties, not the roofer’s.

Because premiums are based on payroll and final numbers are rarely known until the end of the year, every workers’ compensation policy is audited. The policy is issued using estimated payroll and finalized with actual payroll. The difference between the estimate and actual result in a refund or bill.

What Workers’ Job Classifications Mean for Self-employed People

In most states, the National Council on Compensation Insurance (NCCI) determines the job classification system and assigns the base rate. NCCI codes look at the actual job duties of the person working not the classification of the company.

For self-employed individuals, this means their NCCI classification is based on their fundamental duties and not any clerical work. However, if a drywall installer hires a clerk to assist with appointment setting, bookkeeping, and invoicing, the clerk is classified as an office worker, not a drywaller. The clerk might be classified in the lower risk category Code Class 8810 while the drywall laborer could be rated at Code Class 5645, resulting in higher workers’ compensation premiums.

In California, clerical employees’ low-risk classification means their base rate is between 40 cents and $1.48 per $100 of payroll while drywallers are rated between $5.81and $50.10. The range is contingent on the specific exposure to additional risk and the previous loss history of the company. Additional risk examples might be the difference between a painter who works inside homes and another painter who works on scaffolding three stories or higher.

Waiver of Self-employed Workers’ Comp

Solopreneurs without employees are eligible to waive workers’ compensation insurance in most states and eliminate that insurance cost. Even though self-employed individuals are not required to obtain workers’ compensation for themselves, they may need to follow proper protocol in some states. This can be as simple as filing forms indicating whether they opt-in or out of workers’ compensation.

Every state is different, so check with the labor board to follow workers’ comp regulations properly. Texas doesn’t require workers’ compensation except in specific circumstances while California requires it prior to the first day of work for employees. You may be asked to sign a form when getting employment as a subcontractor to indicate whether you are covered or not. This could affect employment options because general contractors may not hire those not covered by workers’ comp.

Special Note About Texas Workers’ Comp for Self-employed Contractors

Texas is unique when it comes to workers’ comp laws. As a general rule, the state does not mandate workers’ comp insurance for any size company. However, if an independent contractor works with government entities, she must show proof of workers’ compensation insurance and provide insurance for all subcontractors hired for the same project.

Providers of Workers’ Comp Insurance for Self-employed Individuals

Workers’ compensation insurance providers vary from state to state. Some states require all business owners to go through a state-run fund while others have a competitive marketplace with private and state fund insurance carriers. The best small business insurance carriers will have a policy that adjusts with a sole proprietor as business needs change and perhaps grow with employees.

Self-employed Workers’ Comp Insurance Carriers

Get the best answers for the right coverage by contacting these workers’ comp providers.

1. The Hartford

One of the largest providers for commercial insurance policies in the nation. The Hartford is an ideal place to obtain not just workers’ compensation policy for your business but to also cover your general liability, business property, and professional liability needs. The Hartford understands small business needs, especially for sole proprietors.

The Hartford is the best choice for self-employed individuals in many service industries who need coverage and quick access to certificates of insurance for clients or job contracts. Their claims process is designed to get you back to work as quickly as possible without extra headaches. Check with The Hartford for AARP discounts and bundling options when you combine personal auto and home insurance policies.

2. Insurance321

For the small business owner unsure about where to start, Insurance321 cuts through all the shopping for you. After a quick application followed by a five-minute conversation with a business specialist, Insurance321 finds the best policy with the proper coverage and competitive rates on your behalf.

Insurance321 is the right choice for sole proprietors shopping for options. As an intermediary working with the top insurance providers in the nation, self-employed business owners can feel reassured that they have an unbiased partner working on their behalf to find them the best policies to protect their business separately from personal interests.

3. State Farm

State Farm has been a leader for property and casualty insurance for more than 95 years. As one of the largest auto and home insurance providers in the nation, State Farm also has many commercial insurance lines, including general liability, commercial auto, and workers’ compensation.

State Farm is the right choice for artisan contractors who work from home who are concerned about not having coverage through general contractors or work independently most of the time. Licensed plumbers, carpenters, and electricians can find excellent pricing for self-employed workers’ comp insurance. Note: General contractors are eligible with State Farm.

4. AP Intego

AP Intego is a small business insurance broker that strives to make things easier for the small business owner by offering rate shopping and pay-as-you-go options to reduce upfront costs. Competitive rates and a simplified application make AP Intego a rising leader for small business insurance needs.

AP Intego is the right choice for self-employed individuals such as general contractors who may frequently hire temporary employees for jobs. AP Intego offers a pay-as-you-go option that integrates payroll and premium. This makes the audit process much more palatable since your premium is reflected in actual employment and payroll.

5. Liberty Mutual

Liberty Mutual is a major insurance carrier for personal insurance needs and growing as a small business insurance provider. The carrier prides itself on being a step ahead with innovations in application and claims process to reduce consumer frustration.

Liberty Mutual is a good choice for self-employed individuals who use autos in the course of daily work. Since some automobiles are personal vehicles used for business purposes, many self-employed individuals bundle auto designated for business pursuits with personal home policies. Unfortunately, personal injuries coverage may be limited in an at-fault auto accident while working. Adding workers’ comp policy with Liberty Mutual covers this gap.

Other Self-employed Workers’ Comp Insurance Options

Self-employed individuals have the option to take or waive coverage. There are times when another party may cover the self-employed person. Check with state insurance and labor boards as well as with those who hire you to be certain you are covered properly.

Self-employed Workers’ Comp Coverage Waiver

This is a straightforward approach where the sole proprietor elects not to cover himself for injuries on the job. Essentially, the business owners take a self-insured approach, using health insurance and perhaps disability insurance, while hoping injuries are not long-term.

Subcontractors Get Covered by General Contractor

General contractors often hold a master workers’ comp policy to cover all employees and subcontractors. While most general contractors require subcontractors to produce a certificate of insurance (COI) before the job starts, there are scenarios where the general contractor could be held liable.

Self-employed Insurance Ghost Policy Option

A “ghost policy” is a workers’ compensation policy for a solopreneur who has no employees and opts out of coverage for himself. The insurance carrier creates a policy based on $0 payroll and charges the business owner the minimum annual premium. If the business owner hires someone who unfortunately gets hurt on the job, the individual is covered.

This is important for solopreneurs who occasionally hire people but aren’t always thinking to call the insurance agent to update payroll considerations. A typical example is for a plumber who usually works alone but might hire a small crew to repipe an entire home. The job may only last a few weeks with employees. If anyone gets hurt, the ghost policy kicks in and the payroll is audited to determine the actual policy premiums.

Domestic Home Worker Exclusions

A self-employed person may have regular clients where worker’s compensation coverage is extended via their homeowners’ policies. This is a common practice where homeowners may hire a cleaning person, nanny, or gardener as a regular employee even though the “employee” might still meet the definition of an independent contractor.

Frequently Asked Questions (FAQs)

Workers’ compensation for self-employed individuals is optional but highly recommended. Just because you are the owner of the company doesn’t mean you aren’t susceptible to injury. Opting into a workers’ compensation policy provides you medical and partial wage coverage if you aren’t able to work after an injury.

Where can I get self-employed workers’ compensation?

Check with major insurance carriers or state funds that offer workers’ compensation coverage. These policies may have minimum premium requirements above your actual payroll risk. Some states have self-employed and independent contractor trade workgroups that allow coverage to be obtained under a group benefit for more favorable ratings.

Why did I get a year-end workers’ comp insurance bill?

Every workers’ compensation policy pays premiums based on payroll estimates. 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. The actual risk is determined retroactively with the annual audit.

If payroll was higher than estimated because you hired temporary help, you get a bill for the difference. If payroll costs were less than estimated, you receive a refund. It is essential to keep workers’ compensation records accurate to avoid costly bills later. Failure to complete the audit billing terms can result in a cancellation or non-renewal of the next policy period.

What if I get sick from a job?

Workers’ compensation policies cover illness as well. The coverage typically only applies to conditions that derive directly from job tasks. For example, a pool cleaner diagnosed with a condition directly related to the use of cleaning agents during work could be covered under workers’ comp.

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 is usually still covered if he falls off a ladder and re-injures his back.

Am I covered for workers’ compensation by my general contractor?

On small projects, general contractors may require independent contractors to provide proof of insurance. Others may have coverage through a CCIP, but this is often for large projects. Keep in mind that many employers misclassify workers as independent contractors to avoid payroll taxes and insurance expenses.

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.

Bottom Line

Sole proprietors and independent contractors shouldn’t ignore workers’ compensation insurance for self-employed individuals. The risk for injury and potential loss of income is as important, if not more important, to a self-employed person. Consider a policy that covers your injuries and medical payments if you are injured while working on a job site or otherwise performing job duties.

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.

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