Workers’ comp insurance for self-employed individuals is a policy business owners buy for themselves in case they’re injured while performing job duties. A self-employed workers’ comp policy can pay for lost wages and related medical bills, allowing the self-employed business owner to keep their business afloat while they recuperate, or it can be a ghost policy that satisfies requirements for carrying insurance.
Most self-employed contractors should purchase a worker’s compensation policy. Simply Business, a leading small business insurance marketplace, lets you get a quote and buy self-employed workers’ comp online in minutes.
Is Workers’ Comp Insurance Required for Self-employed Workers?
Every state except for Texas and South Dakota mandates that employers offer workers’ compensation insurance for their employees. However, keep in mind that insurance requirements can change in any state for independent contractors, business owners, and self-employed individuals.
Regardless of the requirements, getting workers’ comp makes sense for solopreneurs if they are:
- Working in a high-risk industry: Repetitive movements, exposure to chemicals, and manual labor are more likely to cause a workplace injury than clerical bookwork. See our workplace injury statistics for more information.
- Fulfilling state requirements: Coverage isn’t always optional for self-employed workers. In California, self-employed employees do not have to purchase workers’ comp unless they are a roofer, since the coverage is required for this profession.
- Meeting contractual obligations: Businesses will often only work with independent contractors if they have workers’ comp coverage and will include proof of insurance as part of the bid process.
- Operating solo-run businesses: If someone runs a business with no other employees, an injury can mean that all operations are shut down. A workers’ comp policy can help generate lost wages.
Principals or owners sometimes will exclude themselves from coverage to save on premium costs or because they feel they don’t need the coverage.
Workers’ Compensation Insurance for Contractors: Do You Need It?
When it comes to requiring workers’ compensation insurance for contractors, every state varies in terms of the following:
- Whether a business needs to provide workers’ comp for its employees.
- The minimum number of employees that prompt workers’ comp requirements.
- The industries and worker types that can be excluded.
Even if your state doesn’t require employers to have worker’s compensation, you should still purchase this coverage if you ever employ contractors for your business because most policies include employer liability, which covers legal defense and damage costs if you’re sued for a work-related injury, illness, or death.
Claiming an employee is an independent contractor is a bad idea because misclassifying workers can lead to paying fines, back taxes, and unpaid salaries. Read our guide on the difference between W-2 vs 1099 workers so that you can classify your staff accordingly.
State & Workers’ Compensation Markets
Note that every state’s workers’ compensation market is different. For example, states like North Dakota, Ohio, Washington, and Wyoming have what’s known as monopolistic funds where worker’s comp coverage is managed through the state. Others have a competitive marketplace that allows businesses to purchase coverage through private carriers.
While monopolistic states handle workers’ comp for injuries, illness, death, medical expenses, and lost wages, they don’t include employer’s liability coverage to pay the costs of lawsuits, damages, and settlements in the event an employee sues. Businesses in these states should consider purchasing stop gap coverage to fill in the liability component.
Workers’ Comp Insurance Costs for Self-employed Workers
Self-employed workers’ compensation costs are based on your state, annual payroll claims history, and job classifications. The job classification represents the risks involved in your daily work. 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 & State
Class Code | Florida | Texas | California |
|---|---|---|---|
0042 Landscaper | $7.92 | $1.88 | $6.42 |
5474 Painting Contractor | $8.32 | $1.42 | $8.83 |
8810 Clerical Office Work | 17 cents | 7 cents | 28 cents |
5551/5552 Roofing Contractor | $14.78 | $4.36 | $23.06 |
8742 Sales Professional | 35 cents | 11 cents | 36 cents |
In addition to class codes, two other factors involved in calculating the total annual workers’ comp premiums are:
- Payroll: This is the amount you page in wages or salaries to others for each job classification code.
- 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. Many insurers also charge minimum premiums for workers’ comp, even for a self-employed individual with no employees. Keep in mind that each carrier has its own way of evaluating your claims history, so quotes can still vary from insurer to insurer.
How Job Classifications Work for Self-employed Individuals
The NCCI considers the actual job duties of the worker. This means job classifications are usually based on the fundamental and riskiest duties of a job, and not on the actual work they may do as a business owner, like bookkeeping.
For example, a self-employed landscaper hires a clerk to assist with administrative work like appointment setting. The clerk will be classified as an office worker using the code 8810, while the business owner would classify themselves as a 0042 class code for landscaping services.
From the above example, the two classifications with their respective total payrolls and the company’s EMR would be listed on the policy and used to calculate the manual rate. Once you take into account carrier-specific charges and minimum premium requirements, you can get the full estimated premium amount.
How To Opt Out of Self-employed Workers’ Compensation
Generally speaking, self-employed individuals, business owners, independent contractors, freelancers, and executives don’t need workers’ comp for themselves unless stipulated in a contract requirement or specific instances, required by state law. However, some states require self-employed workers to file a waiver with the workers’ compensation board, indicating they’re opting out.
In some circumstances, independent contractors may need workers’ comp waivers when they’re providing services to another business. Some states require the business owner to be responsible for providing workers’ comp for independent contractors.
In these cases, business owners can sometimes ask independent contractors to waive the requirement by filing paperwork with the state board. Every state is different, so check with your specific state’s governing entity for specific requirements.
Best Self-employed Workers’ Compensation Insurance Carriers
- Simply Business: Best overall provider for self-employed workers’ comp
- The Hartford: Best for independent contractors
- Thimble: Best for fast quotes and convenience
- Employers: Best for workers’ comp claims services
Simply Business: Best Overall Provider
Pros
- Available in all nonmonopolistic states
- Positive reviews from customers
- Manage your policy online easily
Cons
- Customer service only available Monday to Friday, 8 a.m. to 8 p.m. Eastern time
- To file a claim, you must contact the carrier directly
- Does not offer a mobile app to manage your policy or initiate claims
Standout Features
- Offers two types of self-employed workers’ comp policies: Solo I for sole proprietors, limited liability companies (LLCs), partnerships, and S corporations (S-corps) with no employees, and Solo X, which is a ghost policy that will satisfy any state requirements without providing any benefits
- As a digital online broker, Simply Business makes it easy to compare quotes from multiple top-rated providers. The quotes are generated quickly and in real time.
- You can purchase workers’ comp insurance online or call and speak with a dedicated agent to guide you through the process.
- Simply Business also offers all the core policies a small business needs.
Financial stability: In addition to working with top-rated carriers like biBERK, which AM Best rated A++ (Superior), Simply Business is owned by Travelers. AM Best’s rating of Travelers is an A++ (Superior).
The Hartford: Best for Independent Contractors
Pros
- Superior customer and claims services
- 24/7 claims services
- Specialized workers’ comp claims team
Cons
- May need to finish the quoting process with an agent
- Same-day coverage not always available
- No mobile application for commercial policies
Standout Features
- Pay-as-you-go platform, XactPAY®, available for customers regardless of the size of the business, including self-employed workers
- Construction contract management and risk engineering available for businesses in the construction industry
- Get the coverage your small business needs and add endorsements to customize the policy
- Nurse case managers are assigned to claims to help facilitate a quick return to work
Financial stability: The Hartford has a strong financial position. The Hartford’s AM Best rating is A+ (Superior).
Thimble: Best for Fast Quotes & Convenience
Pros
- Get quotes in 60 seconds or less
- Purchase insurance online
- Generate unlimited instant certificates of insurance (COIs)
Cons
- Four-day delay before coverage is active
- Very difficult to reach anyone in person
- Core policies available but additional policies not yet offered
Standout Features
- Get workers’ comp in about a minute, online or through the app, without the hassle of submitting paperwork or meeting with anyone
- Great customer experience: 4.4 out of 5 stars from over 1,600 customers on Trustpilot[1]
- Thimble’s app for iOS and Android lets you manage your policy, change coverages, share COIs instantly, and file and track claims
- Managed care teams and return-to-work programs for workers’ compensation claims
Financial stability: Thimble is a managing general agent that places you with multiple companies. The workers’ comp quote we received was underwritten by Employers Insurance Group (EIG), and AM Best rated EIG an A- (Excellent).
Employers: Best for Workers’ Comp Claims Services
Pros
- Targets over 30 different low-risk industries
- Provider network
- Four different premium payment plans
Cons
- Quotes only available through a local agent
- Low to no appetite for higher-risk industries
- Complaints are slightly higher than expected
Standout Features
- Specializes in workers’ compensation insurance, including self-employed workers’ comp
- Offers employers several services for workers’ comp claims, including a return-to-work program, a hotline for injured workers, pay-as-you-go billing, and managed care.
- PrecisePay® uses actual payroll figures and minimizes audit variances. It currently works with over 20 different payroll companies to make this feature widely available.
- Maintains a 24/7 hotline staffed by nurses for injured employees who have not received treatment to provide medical advice.
Financial stability: Employers has a healthy financial position to handle claims. AM Best rated Employers an A- (Excellent).
Frequently Asked Questions (FAQs)
Yes. Health insurance and disability coverage regularly have exclusions for work-related injuries. Health insurance also doesn’t provide wage replacement if you are unable to collect your salary because of a work-related injury.
The premium you pay for workers’ comp is based on your estimated payroll. Even if you are self-employed, at the end of the year, it is normal for an insurer to conduct a workers’ comp audit; see our guide on how to prep for a workers’ comp audit. If you gave yourself a raise, then you may end up owing some workers’ comp premium. However, if business was tough and your pay ended up being lower than estimated, you could receive a refund.
It is important to check with your regulatory board to determine if you meet the classification of an independent contractor. If you are, then on smaller projects, general contractors may cover you or may require you to purchase your own coverage. On larger projects, the general contractor may have a contractor-controlled insurance program that provides workers’ comp and general liability for businesses and individuals associated with the project.
No, pre-existing conditions do not prevent employers from obtaining workers’ comp insurance for themselves or their employees. Policies only pay for new injuries and illnesses or flare-ups resulting from existing work.
A member of a single-member LLC still counts as a business owner for workers’ comp purposes. Therefore, it is likely not required by their state to obtain it, but it’s still a good idea to have it because of the coverage it provides and if a contract requires it.
Bottom Line
Workers’ compensation for self-employed individuals is an optional but often recommended coverage. Because you’re self-employed doesn’t mean you aren’t susceptible to injury. Buying a policy provides you with medical and partial wage coverage if you cannot work after an injury. If you have contract requirements, work in a high-risk profession, or are solo-operated, purchase workers’ comp for yourself because of its coverage benefits.
