Workers’ Comp Insurance for Self-employed: Cost & Carriers

Workers’ compensation insurance, while not required, is a good idea for the self-employed. Solopreneurs in high-risk industries like construction can suffer injuries that result in medical bills and lost 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, business owners and self-employed contractors should consider getting workers’ compensation insurance to protect their business should they get injured at work. In a few minutes after visiting The Hartford, you can get a quote and buy coverage for your business.

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What Is Workers’ Comp Insurance for Self-employed?

Workers’ comp insurance for self-employed individuals is a policy for independent contractors or business owners who want to protect their businesses if 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, 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:

• Working in a high-risk industry: Some people face a higher probability of suffering an occupational injury or illness. Repetitive movements, exposure to chemicals, and manual labor are just a few work situations that may mean a self-employed person needs workers’ comp.
• Fulfilling state requirements: In some states, coverage isn’t optional for self-employed individuals. For example, California workers’ comp laws require roofers to have policies on 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. This limits the 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 them coverage even if you’re exempt.

Do Independent Contractors Need Workers’ Compensation Insurance?

Hiring independent contractors or subcontractors as a way around your state’s workers’ compensation requirements is usually a bad idea. First, some states hold business owners responsible for covering subcontractors when they’re in a hazardous industry. More importantly, what you say makes for an independent contractor may not agree with what the law says, and misclassifying workers can lead to paying fines, back taxes, and unpaid salaries.

Business owners who don’t keep a full-time staff and only hire subcontractors and independent contractors for specific contracts have two ways to protect their businesses against workers’ compensation claims: buy coverage or demand proof of insurance from subcontractors.

Independent Contractors vs Employees

Generally, the difference between independent contractors and employees is 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.

On the other hand, 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.

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 can adjust as your business grows.

Self-employed Workers’ Comp Insurance Carriers

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 five 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.

Workers’ Comp Insurance Costs for the 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. Your state then assigns a base rate to each classification. For instance, your workers’ comp base rate could be 85 cents per $100 of payroll if you’re an office worker but $7.50 per $100 if you’re a painter.

An insurer takes your base rate and multiplies it 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: Your experience modifier, or e-mod, is a number that represents your claims history. More claims raise your e-mod, which in turn increases your premium.

In most states, the insurer does this math for each employee and then adds up the total to get your premium. When you’re getting coverage for yourself, your base rate is the only one that matters. This can make policies seem very affordable, but insurers often charge minimum premiums for workers’ comp, even for a self-employed individual with no employees.

Sample Self-employed Workers’ Comp Rates by Class Code and State

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.

Workers’ comp premiums also vary by the insurer if the insurer is in charge of assigning your experience modification rate. Each insurer has its own way of evaluating your claims history, and some may weigh the frequency or severity of claims differently. This makes comparing quotes from multiple carriers an important part of keeping workers’ comp costs down.

How Job Classifications Work for Independent Contractors

Most states use the job classifications created by the National Council on Compensation Insurance (NCCI) that look at the actual job duties of the worker. For self-employed individuals, this means their job classification is usually based on their fundamental duties and not on any additional work they may do as a business owner, such as 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.

Can Independent Contractors Opt Out of Workers’ Comp Insurance?

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 labor 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 some states, the business owner may be responsible for providing workers’ comp for the independent contractor. Rather than take on that expense, the business owner may ask the independent contractor to waive the requirement, which also usually requires filing paperwork with the state board. Every state is different, so check with your state’s governing entity for specifics.

Self-employed Workers’ Comp Frequently Asked Questions (FAQs)

Workers’ compensation for self-employed individuals is an optional but highly recommended coverage. 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.

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.

What if I get sick from a job?

Workers’ compensation policies cover occupational illnesses too. The coverage typically only applies to conditions that derive directly from job tasks like a pool cleaner diagnosed with lung disease caused by chemicals she uses for work.

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.

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.

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.

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