This article is part of a larger series on Workers' Compensation Insurance.
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.
Most self-employed contractors should strongly consider getting a policy to protect their own income and business in the event they’re injured on the job. The Hartford, a leading small business insurer, lets you get a quote and buy coverage in just minutes. Its annual premiums run from $300 to $620 per individual.
Is Workers’ Comp Insurance Required for Self-employed?
While state law typically mandates that employers get workers’ compensation for their employees, coverage is usually optional for independent contractors, business owners, and self-employed individuals. Remember, too, that most employers need workers’ compensation, so if you’re self-employed and hire staff, then you’re responsible for getting coverage for them even if you’re exempt.
While most policies are designed and, in many cases, legally required to cover employees, principals or owners will often exclude themselves to save on premium costs or because they don’t feel they need the coverage.
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 just a few work situations that may mean a self-employed person needs workers’ comp.
- Fulfilling state requirements: Again, 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’ comp coverage because it limits the other business’ liability should the independent contractor suffer an injury while working for them.
- Continuing solo-run business operations: If someone runs a business with no other employees, an injury to them would cause all operations to shut down, and they wouldn’t be able to generate income unless they had workers’ comp coverage.
Certificate of Insurance
Sometimes a business owner needs to show a certificate of insurance indicating they have workers’ comp coverage even when they have no employees for a contracting requirement or due to state law. To fulfill these requirements, business owners could buy what’s known as a “ghost policy.” It’s a workers’ comp policy specifically designed to allow contractors to provide proof of coverage while excluding themselves and is under the assumption that if they hire anyone else, they’ll already be covered.
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
- Aren’t paying uninsured subcontractors
While it goes without saying, business owners shouldn’t be paying employees under the table or claiming workers’ are independent contractors when they aren’t. Both of these acts can mean serious fines and additional bills for the premium they should have been paying. It also opens up liability issues if an employee classified as a contractor was injured and a business didn’t have sufficient workers’ comp coverage for them.
Do I Need Workers’ Compensation Insurance for Contractors?
When it comes to requiring workers’ compensation insurance for contractors, every state varies in terms of the following:
- Whether you need to provide workers’ comp for your employees.
- The minimum number of employees that prompt workers’ comp requirements.
- The industries and worker types that can be excluded.
In Minnesota, for instance, independent contractors aren’t listed as exclusions from workers’ comp coverage unless they fall under certain classes of business.
Alternatively, Texas doesn’t have any workers’ comp requirements, no matter how many employees you have. Even if you don’t fall under the requirements for your state, you should still purchase workers’ comp insurance because, for most policies, part of the coverage includes employer liability, which covers legal defense and damages 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 you paying fines and making up for 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.
Where To Get Workers’ Comp Insurance for Self-employed
The best workers’ comp insurers have expertise in your industry and policies suited for solopreneurs and your business’ needs. We highlighted the following for self-employed workers’ comp recommendations. For a more detailed list of general workers’ comp providers read our article on the Best Workers’ Compensation Companies.
Businesses and self-employed individuals wanting pay-as-you-go workers’ compensation insurance
Business owners looking for a specialized workers’ comp company with many risk management resources
Artisan contractors working independently or under a general contractor
Independent contractors wanting to use a broker compare policies from multiple, top-rated carriers
Micro-businesses in high-risk industries that are complicated coverage to place
The Hartford, one of the largest providers for commercial insurers in the nation, is the best choice for self-employed individuals who need coverage but are concerned about unexpected costs. Rather than paying an estimated premium based on inconsistent payrolls, The Hartford offers a pay-as-you-go plan that charges a premium based on your actual monthly payroll as you run your payroll.
It is also notorious for being able to write monoline workers’ comp insurance for businesses without requiring them to obtain other commercial coverages like general liability, commercial property, business owners’ package, professional liability, and management liability. Other carriers typically only will offer workers’ comp if the insured also purchases the other coverage unless the worker class codes are extremely low risk.
Employers is an insurance company that specializes specifically in workers’ compensation for small businesses. As part of its niche market and product, self-employed individuals and business owners have access to solid premium rates and a plethora of risk management resources including 24/7 claims, workers’ comp fraud prevention, loss control, and managed health care services.
There’s also a return to work program that helps get injured employees back to work as soon as possible. Additionally, it offers a pay-as-you-go premium plan and a simplified workers’ comp audit process.
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. With the carrier, specialist trades—such as plumbers, carpenters, and electricians—can find excellent pricing for self-employed workers’ comp insurance.
CoverWallet is a top small business insurance broker that allows users to fill out an online application and receive the best-priced workers’ comp quotes all at once. The application takes only a few minutes to complete, and quotes for eligible independent contractors and businesses appear in less than a minute. This makes it simple for you to compare offers and pick the appropriate policy for your work.
When it comes to workers comp insurance, it’s often difficult for business owners in high-risk industries that see a lot of claims, such as construction or manufacturing, to procure coverage. Liberty Mutual can help through its assigned risk program, which helps companies secure coverage for insureds who can’t qualify for carriers in the standard market. As part of this, self-employed individuals in risky worker class codes for over 26 states can get the coverage.
States & 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 it’s all managed through the state. Others have a competitive marketplace that allows businesses to purchase coverage through private carriers.
Tip: While the monopolistic states handle work 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 four states should purchase stop-gap coverage to fill in that liability component.
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 gets a base rate, typically assigned by a rating bureau like the National Council on Compensation Insurance (NCCI). Each state may also group classes of workers into one code while others will separate them into more options.
While many business owners might only do administrative or clerical work, others will find themselves on the front lines of operations, requiring them to classify as a higher risk code. Many also prefer to focus on the sales and networking side of the business and primarily act as a traveling sales representative.
Sample Self-employed Workers’ Comp Rate Ranges by Class Code & State
The table below shows just how much self-employed workers’ comp costs can vary by state and class code. A worker doing clerical work sees a lower rate range while jobs that are more likely to cause injury have higher rates. Class code rates are shown as per $100 of payroll. For example, if you’re self-employed and do mostly landscape work in Virginia, the rate is $3.80, and if you pay yourself $100,000, your premium will be $3,800 per year.
$6.42 to $24.10
$1.12 to $5.47
$3.76 to $5.47
5474 Painting Contractor
$8.83 to $38.66
$1.42 to $6.93
$3.80 to $5.53
9079 Mobile Food Truck
$3.17 to $12.14
58 cents to $1.94
88 cents to $1.28
8810 Clerical - Office Work
28 cents to 99 cents
7 cents to 26 cents
7 cents to 10 cents
5551 or 5552 Roofing Contractor
$23.06 to $87.83
$4.36 to $21.28
$11.84 to $17.20
8742 (Outside/Traveling) Sales Professional
36 cents to $1.35
11 cents to 37 cents
15 cents to 22 cents
As you can see, some of the total class code rates can have extremely wide ranges. To get a more exact estimate, you would use the two main factors that are accounted for to determine your total annual workers’ comp premiums:
- Total payroll: This is the amount you pay in wages/salaries to others for each job classification code.
- 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.
The resulting rate is often called your manual rate—the one insurers quote before they account for fees, taxes, surcharges, and discounts. Most insurers also 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. This makes comparison shopping key to getting the best rate for your situation and keeping workers’ comp costs down.
How Job Classifications Work for Self-Employed Individuals
Most states use the job classifications created by the NCCI, which look at the actual job duties of the worker. For self-employed individuals, this means their job classification is usually based on their fundamental and most risky 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 administrative work like appointment setting, bookkeeping, and invoicing. 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.
As a result, the two classifications with their respective total payrolls and the company’s experience mod 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’ Comp
For the most part, self-employed individuals, business owners, independent contractors, freelancers, and executives don’t need workers’ compensation coverage for themselves unless stipulated in a contract requirement. However, some states require self-employed workers to file a waiver with the workers’ compensation board indicating they’re opting out.
There are also circumstances where 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’ compensation for independent contractors. In these cases, business owners can sometimes ask the independent contractors to waive the requirement by filing paperwork with the state board.
Every state is different, however, so check with your state’s governing entity for specific requirements.
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’re 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?
Yes. Self-employed contractors often assume health insurance and disability coverage cover occupational injuries and illnesses—which is not the case. Most health policies don’t pay for work-related events, and for the small number that do, they’ll require super high deductibles. Health insurance also doesn’t cover the income you lose when you are unable to work while workers’ comp does.
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 a 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.
This is also what makes pay-as-you-go options for insurance companies so valuable because you can pay your premiums month-to-month as payroll is processed. This means no surprise bills at the end of the year.
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), which provides workers’ compensation and general liability coverage for businesses and individuals associated with the project.
Check with your local labor regulatory board to determine if you meet the classification of an independent contractor. If not, then your employer should have workers’ comp coverage for you.
Will preexisting conditions prevent me from getting self-employed workers’ comp?
No, 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.
For example, a carpenter with a back problem that wasn’t caused by their job can still receive benefits if they fall off a ladder and re-injure their back because the injury was work-related.
Does a single-member LLC need workers’ compensation insurance?
A member of a single-member LLC for the purposes of workers’ compensation still counts as a business owner. Therefore, they will likely not be required by their state to obtain it, but it’s still a good idea to have because of the coverage it provides and if a contract requires it. You should always contact your state’s workers’ compensation board or an insurance professional to find out what your requirements are.
Workers’ compensation pays for lost wages and medical expenses for injuries or illnesses caused by work-related activities. While states often require businesses to purchase coverage for their employees, owners are often excluded from the requirements. Still, if you have contract requirements, work in a high-risk profession, or are solo-operated, you should purchase workers’ comp for yourself due to its coverage benefits.