Understanding Workers’ Compensation Insurance For Independent Contractors

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Workers’ compensation insurance is essential coverage that protects employees and their families financially if a worker is injured or killed on the job. Also called workers’ comp and workman’s comp, it covers medical bills and lost wages due to work-related accidents. If a worker dies in an on-the-job incident, a workers’ comp policy can pay the family a death benefit.

States regulate workers’ comp insurance requirements. However, companies with employees are nearly always required to have coverage. But what if you’re an independent contractor with no employees? Are you required to have coverage for yourself? There are special considerations regarding workman’s comp for self-employed individuals.

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Workers' Compensation Insurance: Sometimes Required by Clients

States generally do not require independent contractors and other self-employed people to have workers’ compensation insurance. However, that doesn’t mean you are never required to have it.

While your state may say your business can operate without coverage, the companies you work with may have a different opinion. They may require that you have a workers’ comp policy and can prove it by providing a Certificate of Insurance (COI). If you don’t have coverage, they won’t accept your bid on the work.

Protecting Your Business Financially if You Are Injured

When considering workers’ comp insurance, it is important to look beyond coverage requirements. Even if neither your state nor your clients require you to maintain coverage, having a policy can benefit you. As it does with employees, workers’ comp can protect you as a self-employed individual or independent contractor from medical expenses due to work-related injuries or illnesses. Plus, a workers’ comp policy can help replace lost wages while you are recovering. 

Workman's Comp Insurance and Subcontractors

If you hire subcontractors to help you with projects, you may wonder how workman’s comp requirements affect that scenario. Do you need a workers’ compensation policy to cover subcontractors?

Again, states dictate workers’ comp requirements, but yours may require that you maintain coverage for them. That requirement may exist even if your subcontractors have their own workman’s comp insurance policy. It hinges on whether or not your state classifies subcontractors as “employees.”

As a rule of thumb, someone is considered an employee if they receive a W-2 tax form from you and a contractor if they get a 1099. However, your state may have a different definition, so it is critical that you review the workers’ comp laws where your business operates.

Your state can impose penalties like fines and even jail time if you are required to have coverage but don’t obtain it. That is true even if you never have to file a workers’ comp claim.

Determining Your Workers' Comp Cost

If your state or clients require that you have a workers’ comp policy—or you choose to have it to protect your business—you can get a quote to learn what you will pay. Many business insurance providers offer instant, self-service quotes online. That is helpful since it means you can determine your cost whenever it is convenient for you. There is no need to take time out of your busy day to meet with an insurance company representative or several of them if you are looking for the best rate. 

The cost of workers’ comp coverage is based on gross annual payroll, but the rate varies. For example, in one state, the cost per $100 in wages may be $.75, while in another, it is $2.50. Other factors like the type of work you do, your claims history, etc., can affect your cost. Reputable insurers will have licensed insurance experts available to answer questions about things like coverage requirements and costs.

One of the great things about working with an insurance company with an online business model is that, in addition to getting quotes online, you can purchase coverage and have it active as soon as the next day in most cases. You can also report claims and manage your policies online. That all makes getting and using workers’ comp and other business insurance much more efficient and much less of a drain on your time.

Other Vital Small Business Insurance Coverage

While this article is focused on workers’ compensation insurance, it’s essential to know that most small businesses also need other coverage. Insurers offer various policies for different risks. Some of the most common are:

  • General liability insurance. This policy covers damages and legal costs associated with a variety of incidents, from damaging the property of others to causing injuries to non-employees. A common example is a lawsuit over a client’s slip-and-fall injury at your office or place of business.
  • Commercial auto insurance. If your business owns or leases vehicles for work purposes, this policy protects you from lawsuits if you are at fault in an accident.
  • Cyber insurance. Often purchased as an add-on to a liability policy, this coverage protects you if someone steals sensitive information and uses it to commit fraud or is likely to do so.
  • Umbrella insurance. Liability insurance policies have a maximum value they will cover in the event of an incident. Umbrella insurance policies provide additional protection, covering amounts that exceed the underlying policy up to their own limits.
  • Business owners policy. Often referred to as a BOP, this policy combines liability coverage with protection for business property.

Get Informed and Get Workers' Comp Coverage

Like all business owners, independent contractors need to understand their workers’ compensation insurance requirements. You should contact the appropriate state agency to learn about your insurance obligations.

Once you understand them, you can easily get coverage if needed or if you just want to ensure you don’t end up with significant unexpected expenses due to work-related injuries.