Workers’ compensation insurance, while not required, is a good idea for the self-employed. The chance of injury exists for the solopreneur with consequences being 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, a self-employed contractor can obtain self-employed insurance to protect him or her should he or she get injured at work. In a few minutes visiting The Hartford, you can obtain a quote and bind coverage for your self-employment and independent contractor pursuits.
How Workers’ Compensation Insurance for Self-employed Works
Workers’ compensation insurance for self-employed covers a solopreneur or independent contractor who is injured while performing job duties. The individual is compensated for lost wages and medical payments related to the injury as 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 will be enough. However, with most independently obtained health policies having deductibles up to $12,000, this amount could be insurmountable as well. Even if the solopreneur has disability insurance, which many elect not to get, these 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 while others have a mixture of the two. Call insurance providers to 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 payroll amount.
For example, Minnesota uses $54,000 as a base payroll and carriers will audit the books at the end of the policy period. Initial policies are always estimates of payroll and, therefore, premium. The policy period ending audit reviews actual payroll and retroactively charges or refunds premiums.
Who Workers’ Compensation Insurance for Self-employed Is Right For
A solopreneur might not be able to prevent getting hurt on the job. However, he or she can prevent 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 insurance that covers workers’ compensation prevents this.
General contractors have to confirm whether workers do or don’t have coverage based on state laws, which vary widely. A sole proprietor who occasionally hires help needs workers’ compensation insurance as well.
Some cases where workers’ compensation self-employed insurance is ideal include:
- Concerned about his or her own safety and income on the job
- Required to have a certificate of insurance for subcontracting work
- May hire an employee in the future and wants to be protected ‘just in case”
Most employers view workers’ comp insurance as an expensive requirement. The reality is as a self-employed individual, your risk is much higher if you are out of work for an extended period of time due to injury. There are no others in the company to offset your duties to continue revenue work and medical expenses are often insurmountable.
Workers’ Compensation Insurance for Self-employed Costs
Workers’ compensation premium costs for any employer regardless of self-employed or not, is contingent on the state, the annual payroll and the classification of workers. Classification determines the price per unit of cost. That means it could cost 85 cents per $100 of payroll for an office worker and $7.50 per $100 for a contractor.
Minimum policies start with coverage for one or no employees for $250 annual premium costs. Because the premium is based on payroll and final payroll 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.
Costs for workers’ compensation insurance vary widely. A self-employed landscaper in Tennessee making $60,000 annually could pay $2,500 annually. A solar sales representative going door to door in the same area as the landscaper could pay as little $200 annually.
Workers’ compensation premiums are based on the worker’s status, including:
- Job classification: how risky the work is; for example, a bookkeeper has a lower risk classification than that of a mechanic
- Total payroll: Premium is calculated by a rate for the classification multiplied by every $100 of payroll; if the classification rate is $1.25 per $100 and the payroll is $50,000, the premium is $625
A solopreneur is classified by his or her primary job duty while companies with employees classify employees based on primary job functions. This means the customer service representative is classified at that risk level while the roofer is classified based on his or her risk level.
What a Worker’s Rate Classification Means
The workers’ compensation rate classification is determined by a national job classification system, the National Council on Compensation Insurance (NCCI). This is a derivative of industry North American Industry Classification System (NAICS) codes used to classify job data. NCCI codes look at the actual job duties of the person working not the classification of the company.
For the self-employed person, the NCCI code generally will be the code based on actual job duties and not any clerical work. However, if a drywall installer hired a clerk to assist with setting appointments, bookkeeping and invoicing, the clerk would not be classified the same way as the drywall installer. The clerk might be classified at the lower risk category Code Class 8810 while the drywall laborer could be rated at Code Class 5645.
In California, a clerical employee gets a rating range of 40 cents to $1.48 while a carpenter installing drywall as his or her trade is rated between $5.81 to $50.10 per $100 of payroll. The range is contingent on the exposure to risk and the previous loss history of the company.
Opting for a Waiver of Self-employed Workers’ Compensation
A solopreneur without employees is eligible to waive workers’ compensation insurance. Even though self-employed individuals are not required to obtain workers’ compensation for themselves, they need to follow proper protocol in some states. Some states require all registered business owners to file form whether they opt for or out of workers’ compensation.
The IRS has also cracked down on the use of independent contractors, auditing more and more sole proprietors who claim they only use independent contractors. Many self-employed people claim all hired help is via independent contractors because they don’t want to deal with payroll, taxes, and insurance. If you are self-employed with anyone working for you, confirm they are truly an independent contractor to avoid IRS penalties.
Every state is different so check with the labor board to properly follow labor regulations. Texas doesn’t require any employer to have workers’ compensation while California does. You may be asked to sign a form when getting employment as a subcontractor to determine if you are covered or have waived coverage. This could affect employment options.
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 premium and charges the business owner the minimum annual premium. In the event 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 common example is for a plumber who usually works alone but might hire a small crew to repipe an entire home. The job might only be 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.
Providers of Workers’ Compensation Insurance for Self-employed
Providers for workers’ compensation insurance varies from state to state. Some providers require all business owners to go through the monopolistic state fund while others have a competitive marketplace with private and state fund insurance carriers.
Self-employed Insurance Carriers for Workers’ Compensation
| The Hartford | |
| Insurance 321 | |
| Hiscox | |
| AP Intego | |
| Liberty Mutual |
Get the right answers for the right coverage by contacting these workers’ compensation 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. 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. Insurance 321
For the small business owner unsure about where to start, Insurance 321 cuts through all the shopping for you. With a quick application followed by a five-minute conversation with a business specialist, Insurance 321 finds the best policy with the proper coverage and competitive rates on your behalf.
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 and personal interest.
3. Hiscox
Hiscox is emerging as a leader for small business insurance solutions. The carrier partners with Coverhound to insure businesses for workers’ compensation. Hiscox maintains competitive coverage for small businesses, particularly independent contractors. Rates are favorable for the small company concerned with costs.
Learn to navigate the state-mandated workers’ compensation requirements as they pertain to your business. Hiscox makes this process easy while helping cover other small business insurance needs. This carrier offers discounts for bundled business policies.
4. AP Intego
Ap Intego is a small business carrier that strives to make things easier for the small business owner. Competitive rates and simplified application and claims process make AP Intego a rising leader for small business insurance needs.
AP Intego offers a pay as you go option that integrates payroll and premium. This makes the audit process much more palatable. As payroll changes, your premium is reflected on actual payroll and employee needs.
5. Liberty Mutual
Liberty Mutual is a major insurance carrier for personal insurance needs and a 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.
A self-employed person who wants to keep things simple with all personal and business policies maintained in one central location will like the convenience of Liberty Mutual. There are bundling discounts and the sole proprietor can get any number of business insurance policies including competitively priced business owner policies.
Other Self-employed Insurance Options
Self-employed individuals have the option to take or waive coverage. There are times when the self-employed person may be covered by another party. Check with state insurance and labor boards as well as with those who hire you to be certain you are properly covered.
Self-employed Waives Coverage
This is a straightforward approach where the sole proprietor is electing not to cover himself or herself for injuries on the job. This essentially becomes a self-insured approach using health insurance, perhaps disability insurance, and hoping injuries are not long-term.
Subcontractors Get Covered by General Contractor
General contractors hiring subcontractors often hold a master policy to cover all employees and subcontractors. While most general contractors require subcontractors to produce a certificate of insurance before the job starts, there are scenarios where the general contractor could be held liable.
Clients Maintain Coverage for Self-employed Insurance Need
A self-employed person may have regular clients that have extended workers’ compensation coverage via their homeowner’s policies. This is a common practice where homeowners may hire a cleaning person, nanny or yard person 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 potential wage coverage if you couldn’t work after an injury.
Where Can I Get Self-insured 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 Self-employed 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 retroactively determined with the annual audit.
If payroll was higher than estimated, you get a bill for the difference. If payroll costs were less than estimated, you receive a refund. It is important to keep workers’ compensation records accurate to avoid costly bills later. Failure to complete the audit billing terms can result in cancellation or nonrenewal of the next policy period.
What if I Get Sick From a Job?
Workers’ compensation policies cover illness as well. If you have coverage for illness through a workers’ compensation policy, you will be covered for illnesses that result from work. For example, a pool cleaner diagnosed with a condition directly related to the use of cleaning agents during work could be covered under workers’ compensation.
Will Pre-existing Conditions Prevent Me From Getting Workers’ Compensation?
Preexisting conditions of employees do not prevent employers from obtaining workers’ compensation insurance. If the employee has a preexisting condition, the policy will only pay for new injuries or illnesses or flare-ups resulting from existing work. A carpenter with a back problem will still get coverage if he or she falls off a ladder re-injuring his or her back.
Am I Covered for Workers’ Compensation by My General Contractor?
Many independent contractors are misclassified by employers to avoid payroll taxes and insurance expenses. Check with your local labor regulatory board to determine if you meet the classification of independent contractor. If not, your employer should have workers’ compensation coverage for you.
The Bottom Line
Sole proprietors and independent contractors shouldn’t ignore workers’ compensation insurance for self-employed. The risk of injury and potential loss of income is as important, if not more important, to a self-employed person. Consider a policy that covers you for 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’ compensation insurance quote from The Hartford today and have coverage before you start your workday tomorrow.
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